KPIT-Birlasoft Deal: Mid-sized IT Companies Can Follow New Model

The KPIT-Birlasoft transaction could create a path for smaller Indian IT companies that have struggled to attract investment and carve niches in the increasingly competitive market. KPIT and Birlasoft will merge to create a $700 million combined firm, which will then split into a $500 million enterprise digital IT company and a $200 million automotive engineering R&D company.

“This transaction is a classic case of what mid-sized IT companies will have to do to stay relevant. It is not without risk. There will be a year of transition in which they will have to manage investors, customers and employees. It is a bold move but a good one,” Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research, said. 

“We talk to a number of mid-sized players and all of them are looking at transforming business. With the changes in the industry, the impact on margins has been brutal. But this is a complex structure. And if you can take the private-equity route, that is easier,” Gogia said. 

Gogia concurred that the deal structure would be harder to accomplish if the companies did not have strong backing from the founders. 

[Economic Times]

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Analyst:

Sanchit Vir Gogia: Sanchit is the Chief Analyst, Founder & CEO of Greyhound Knowledge Group, a Global Strategy & Transformation Research, Advisory & Consulting Firm. To read more about him, click here.


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