BENGALURU: Wipro’s acquisition of Capco which is at “lofty valuations" can pose its own challenges, say analysts. “Capco’s revenue stagnancy is of concern as it can be a further drag on the already low growth of Wipro. Given its onsite / consulting heavy nature, the acquisition should weigh on IT services margins," ICICI Securities said in a report.
Last week, IT major Wipro Ltd announced an agreement to acquire UK-based management and technology consultancy firm Capco for $1.45 billion. The acquisition is expected to close in the quarter ended June.
Revenues of Capco have been largely stagnant for the previous three years. EBIT margins are hinted to be close to the onsite margin profile of Wipro. “Including amortization of the intangibles, Wipro expects its IT services margins to be diluted 2% in the first year with the acquisition turning EPS-accretive from third year," the report stated.
Capco provides consulting, digital and technology services to financial institutions in the Americas (55% of revenue), Europe (41% of revenue) and the Asia-Pacific (4% of revenue). As part of the acquisition, Wipro will also get access to 30 marquee banking, financial services and insurance (BFSI) clients and over 5,000 consultants of Capco.
On completing the acquisition, Wipro plans to operate Capco as a separate entity, which is seen as a positive by the brokerage firm. “Keeping Capco as a separate entity should address branding, go-to-market, and culture conflict issues to an extent," ICICI Securities said.
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