Reconsidering TCS’ SWOT assessment: M&A comes alive

In November our detailed report on Tata Consultancy Services’ (TCS) performance and strategy included a SWOT slide with the following item in the Threat category: “Competitors are building assets and scale quickly through acquisitions; TCS retains a conservative M&A stance.” Just a couple of weeks into 2019, we’re seeing a change from the company: a willingness to attack this threat head-on. As noted in our Jan. 10 initial response on the company’s 4Q18 earnings, “TCS’ purchase of London-based digital design atelier W12 Studios will be integrated into TCS Interactive beginning in 1Q19.” BridgePoint, a Georgia-based consultancy, and W12 Studios are TCS’ first acquisitions since 2014, ending a four-year hiatus in M&A for the largest of the India-based IT services majors TBR tracks.

While the acquisitions of BridgePoint and W12 Studios represent a commendable departure for TCS from its traditional aversion to inorganic growth, neither will significantly move the needle for TCS in revenue, added human resources, or market reach. It also remains unclear how much, if any, intellectual property or new client access TCS will obtain from either acquired company. In the digital marketing space, TCS gains no meaningful or material ground on any of its chief peers, particularly Accenture, which generates over $8 billion a year in digital marketing services revenue.

Reflecting these developments, we will update our SWOT slide in the coming full report.

We fully expect TCS will continue down the M&A path, particularly in the Consulting & Services Integration (C&SI) and Digital Transformation Services business lines, as both businesses built a war chest for acquisitions and need to enhance their offerings to continue to compete. Our most recent assessment describes the company as having “successfully repositioned, recalibrated and revamped its solution suite to go beyond operations optimization and deliver scalable, digitally based growth and transformation enablement for its global clientele. All of its internal delivery processes have also been completely renovated to support a growing volume of Agile-based projects in the company’s pipeline, while nearly three-quarters of TCS’ workforce has been upskilled in Agile methodologies. Digitally based engagements continue to constitute an ever-expanding share of TCS’ revenue base and order book, driving a strong deal pipeline that is well balanced across multiple geographies and vertical industry sectors.”

Look for our complete analysis of Tata Consultancy Services Feb. 1, 2019.