Equiteq Deal Talk: Cloud Consulting M&A

Wipro acquires Appirio and positions itself as a leading global player in the rapidly consolidating cloud services market.

By Ramone Param, Buyer Coverage Associate, Equiteq.

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The pervasive adoption of cloud solutions is continuing to transform businesses across industries. The most commonly cited drivers for the transition from on-premise to cloud-based technologies are users’ ability to reduce costs, improve risk management and enhance scalability. This evolution in demand is causing widespread disruption to the technology industry, as evidenced by the wave of high-profile restructuring and deal activity amongst the legacy technology players.
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Cloud-based applications are complex to implement and manage, which drives demand for cloud services. Salesforce and Workday are considered to be some of the leading vendors of cloud-based applications, with strong networks of specialist consulting partners. We heard at Salesforce’s recent annual Dreamforce conference that they expect a massive increase in the population of Salesforce consultants required globally by 2020. We also regularly receive feedback that there is rising demand and a limited supply of consulting expertise related to Workday. The rising need for capabilities related to both of these technologies is driving organic growth and consolidation in the cloud services space.

At the end of last week, Wipro Ltd (NYSE: WIT, BSE: 507685, NSE: WIPRO), a leading Indian IT-Services player, announced their acquisition of Appirio for $500m. Appirio is a US-based cloud consultancy with global operations and an enviable blue-chip client base. The business is considered to have particularly strong partnerships with Salesforce and Workday, as highlighted by each CEO’s endorsement of the transaction. Appirio was positioned as a prized acquisition target amongst a range of potential suitors. This followed a wave of deals involving its competitors, which left Appirio as being one of the largest independent cloud transformation specialists left in the market.cloud-consulting-image

In March, IBM acquired leading Salesforce consultant, Bluewolf Group, for a reported deal value of $200m. Earlier in the year, CapGemini acquired Oinio, one of Europe’s leading Salesforce partners. These transactions followed Accenture‘s landmark acquisition last year of leading cloud consultancy, Cloud Sherpas, which reportedly valued the business at $350m. Deal activity had also been high in connection with Appirio’s previous Workday consulting competitors. Last month, Accenture acquired leading 400-person Workday consultant, DayNine. This transaction followed two notable acquisitions last year – IBM acquired Workday partner, Meteorix and KPMG acquired Towers Watson’s Workday practice.

This strong deal activity reportedly coincided with Appirio receiving offers for their business and increased speculation that Appirio would either sell or IPO at the beginning of this year. On Thursday, Wipro confirmed rumors that it was acquiring Appirio, which will be one of its largest deals. Traditional technology services players like Wipro are reportedly struggling with slower revenue generation from traditional on-premise ERP implementations and consulting. Appirio will position Wipro as the leading Indian technology services player in the cloud services space. Wipro will also benefit from Appirio’s top-tier client base, which includes many big brand names. Appirio will be able to offer these clients a more holistic set of managed services through Wipro’s global business process outsourcing business, which will enable the business to better compete with the likes of Accenture, IBM and CapGemini.

As we highlight in our third quarter market update, we expect the IT Services segment to experience strong deal activity in the final quarter of the year. Wipro’s acquisition of Appirio is likely to spur the other large Indian technology services competitors to consider opportunities in cloud services. We also regularly receive interest from a range of acquirers across other buyer groups for cloud consulting capabilities. This includes the leading technology consulting and professional services buyers, as well as private equity that are looking for services businesses with long-term drivers for growth and barriers to entry maintained by proprietary expertise. Some market commentators also initially considered Appirio’s partner and investor, Salesforce, as a potential acquirer for the business. This reflects demand amongst vendors of cloud-based applications to deepen their services offering across consulting segments.

Important Notice: This article has been compiled using our daily activities in the industry that provide us with unique market intelligence, along with various third party information sources.

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