Two Pune-based IT firms are creating ripples by their ambitious overseas expansions.
Persistent Systems has bought CloudSquads, a Pune- and San Francisco-based start-up that builds social apps for the enterprise market.
Similarly, IT services firm Cuelogic Technologies has acquired the services arm of California-based Evolutionate through a prior strategic partnership.
It appears as though the convention of takeovers of small Indian IT companies by larger firms and global majors is passe.
Mritunjay Singh, COO, Persistent Systems, said, "We have been doing multiple acquisitions, some of which also include companies abroad. What's actually happening now is that companies are indulging in affordable acquisitions. If one has aspirations of being a market leader, which Persistent certainly does, then one has to employ the right kind of strategies."
Especially when there is no time or way to build such a strategy organically. "One has to create capabilities because without them one cannot spot opportunities. With both of them together, one can look out for attractive offers in the market. Once these amenities are garnered, one can go out in the market and play a capability game," said Singh.
After cloud-computing and mobile, the latest trend of takeovers in the industry is that of SMAC (social, mobile, analytics and cloud).
CloudSquads is a major player in this sector. It creates products that help companies like E*Trade, GE, Autodesk and Fortune 500 companies to use social media for customer support, sales and marketing.
"From that perspective it's quite a strategic acquisition for Persistent Systems. We have a practice around social collaboration. It complements the capabilities we have. It will help our position much better in our market," Singh said.
Nikhil Ambekar, CEO of Cuelogic said, "We were strategic partners with Evolutionate, a Los Angeles-based Software services company, and jointly offered product development services to their clients. We decided to acquire its services arm so as to have a west coast presence and do more for our clients with a local office."
The 'reverse takeover' trend can be traced back to Infosys's acquisition of Zurich-based Lodestone Holding, a leading management consultancy firm in 2012. TCS, too, acquired a French IT services company Alti last year, while Wipro has a long history of taking over firms in the US and other IT hubs.
Neel Vartikar, chief customer officer, Cuelogic, said, "Clients in the US have started looking up to Indian companies not just from a cost-saving perspective but also to use the technology available in India to grow their businesses, which makes it critical for us to move closer to our clients and learn more about their businesses to grow with them. With world class product companies setting up shop in Pune, it becomes simpler to attract talent and offer cross functional product teams in an onshore-offshore model."
In 2013, Cuelogic also took over AU Software Technologies, a mobile- and web-based game development company to boost and add game development services to the portfolio offerings.
Ashwin Megha, COO, SNS Technologies, agrees with the general consensus about the underlying reasons, "An acquisition ensures good network of existing customers and suppliers which would have taken years to build for in a new market. You don't just get the companies business but also the tacit knowhow and skilled workforce, low go-to market costs and strengthens the management."
Megha attributes this drift to a matured IT industry in India. "In India, IT is now global rather than domestic, so it's a natural way to look at overseas cos. for inorganic growth. However, Indian investors should be aware of key regulatory and structuring issues in the US."