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Success sometimes begets a more conservative behavior in order to preserve the very status quo of success. In a recent report, equity analyst firm JP Morgan has said that this adage is perhaps getting true in case of Tata Consultancy Services (TCS) with regard to its recent acquisition strategy.
"The post-listing acquisition history of TCS thus speaks to two starkly contrasting halves: The first half (2004-08) marked by regular, strategic acquisition/buy-out behavior and the second half (2009 - Present) a completely barren one for M&A," the report authored by JP Morgan analyst Viju K George, said.
"It begs the question - is size and success making the company shy of pulling the acquisition trigger? After all, acquisitions are riskier even if they constitute the quicker way of incorporating game-changing aspects to a firm's business model," it added.
In the four year after its listing (between August 2004 to December 2008), TCS has made about eight acquisitions. In most of these acquisitions, the company has been successful at meeting its intent.
For example, while the acquisition of some of Pearl Group's back-office businesses in October 2005 helped TCS in building a BPO platform strategy, the acquisition of Comicrom in November 2005 gave it an entry into Latin American market.
The acquisition of Citigroup's captive BPO, eServe (the biggest acquisition ever made by the company at $512 million) made it a strong player in the transaction processing BPO segment. "But since Dec-08 (4+years), there has been no notable M&A/buyout made by the company even as its success graph keeps rising," it said.
The only M&A play the company has made post 2008 was the acquisition of Computational Research Laboratories (CRL), in August 2012 for about $33.7 million. However, CLR which had exertise in high performance computing was a fully-owned subsidiary of Tata Sons which had funded and incubated it.
According to the report, the TCS's behavior (post 2008) resembles its peer Infosys's almost-barren acquisition history over 2004-08. It said while TCS has made all the right incremental (organic) moves which have the potential of spurring radical progress in the future, the company also requires some radical moves.
"...in our view, given its size it also needs some radical moves today (e.g. acquisitions) as part of maintaining a judicious, 'well-balanced risk' portfolio (at 263,000+ employees, the company now has more employees than Accenture)," the report said.