TCS will start making investments in next two years or will risk being left behind, say experts

MUMBAI: Debashis Poddar may have a busy two years ahead. The global head of mergers and acquisitions at Tata Consultancy ServicesBSE -0.23 % is expected to help boost the company's appetite for M&A deals when its rivals are dipping deep into their wallets to buy growth.

TCS, the country's largest software services company, has always been a conservative player in the M&A space, a trait it used to share with others in the IT industry. However, over the past few months, Infosys and Cognizant Technology Solutions have become more aggressive in buying companies, while Wipro is boosting investments in startups.

Experts believe TCS will start making investments in the next two years or it will risk being left behind. "TCS must decide if it wants to lead or have others catch and surpass it in size and scale. It seems unlikely that they can maintain their leadership by relying exclusively on an organic expansion strategy," said Peter Bendor Samuel, chief executive officer and founder of Dallasheadquartered outsourcing advisory firm Everest Group.

"If TCS is indeed committed to its publically stated goals of growth and broad industry leadership, it will need to raise its sights and change its historical posture regarding M&A." Bendor expects TCS to jump into M&A in a much larger way than it has in the past. TCS has no lack of money to fund an acquisition. At the end of March, the company had about $2.8 billion in cash and bank deposits on its books and virtually no debt.

"You will find Debashis and TCS looking at every deal that comes their way, but they may have to start being less stringent about price because in the IP (intellectual property)-led deals the valuations aren't cheap," a private equity executive who interacted with Poddar and TCS told ET, declining to be identified.

TCS did not make Poddar available for an interview. Poddar has spent about 14 years at TCS. He previously worked at Arthur Andersen and GE Capital.

"Our M&A is dictated by strategic considerations in order to gain scale, acquire functional capability or for some other strategic value," a TCS spokesperson said in response to an e-mail seeking comment. Even equity analysts say the company may need to boost its M&A activity, especially to compete in the fast-growing digital space.

"TCS' M&A track record in digital (which we see as the next big 3-4 year opportunity wave) seems to be muted, especially in relation to what peers such as Accenture and Cognizant are habitually doing on acquisitions in this arena.

A more active M&A strategy in digital may help to power TCS's platform strategy and more broadly, its digital practice," Viju George, an analyst at JPMorgan, said in a note last month.

George also highlighted that the company's strategy currently appears focussed on entering new markets than on game-changing digital acquisitions. TCS' rivals have all become increasingly more active.