Wipro’s Premji Seeks $1 Billion in M&A: Corporate India

By Beth Jinks and Ketaki Gokhale - May 21, 2012

Wipro Ltd. (WPRO) is seeking to make more than $1 billion in acquisitions over the next 18 months, adding intellectual property and software to help boost profit, Chairman Azim Premji said.

India’s third-largest computer-services provider is targeting deals between $50 million and $300 million, though “it’s not a hard cap,” Premji said in a May 18 interview in New York. The company relies mostly on an internal mergers and acquisitions team led by Rishad Premji, the chairman’s son, to hunt for candidates, rather than using investment banks.

“We are trying to create deals, rather than just react to deals which are lying with investment bankers, because we find our win rates are much higher,” said Premji, 66. “We want to supplement our growth rates there and go up the value chain.”

Wipro faces competition in its effort to add higher-margin services business. Larger rivals Tata Consultancy Services Ltd. (TCS) and Infosys Ltd. (INFO) have said they want to make acquisitions in Europe and other non-English-speaking regions in their hunt for new markets. Global IT services spending growth may slow to 1.3 percent this year, from 6.5 percent in 2011, as Europe’s debt struggles continue, research group Gartner Inc. said April 5.

Bangalore-based Wipro offers software-development and business process outsourcing services, as well as consulting and product engineering. IT services accounted for 76 percent of the company’s business in the year ended March 2012. The company, which also has units that make hand soap along consumer products such as light bulbs, generated revenue of 375 billion rupees ($6.89 billion) in the 12 months ended March 31.
Lagged Estimates

Wipro tumbled 7.2 percent, the most in almost three years, in Mumbai trading on April 25 after its forecast for information-technology revenue lagged behind some analysts’ estimates. The stock is down 1.9 percent this year, while Tata Consulting has gained 4.3 percent.

Wipro is looking for specialized companies in analytics, cloud computing and mobile communications, and is focused on industries including health care, financial services, energy and utilities, and retail, Premji said.

“It’s a good time to get a decent price,” he said. “In a slowdown market, people are a little more hesitant” to pursue acquisitions.’’
Open Targets

Target companies also are more open to being acquired “because they’re realizing this is not a time to take it public, they cannot get the kind of upside they would have expected,” he said. “It’s not that people think next year is going to be bullish, or that next year is going to be great.”

Wipro is open to deals in areas where it’s expanding, such as Saudi Arabia, and in parts of Northern Europe and Asia, he said. It isn’t looking at Japan or Southern Europe, or for more acquisitions in Latin America.

The company also isn’t seeking businesses that “are quite down in the value chain,” doing commoditized tasks, after spending more than a year reorienting itself to capture higher- value work, he said. “There are companies available for $1 billion and above in terms of revenue, but they’re available for the wrong reasons.”

Premji, who with his family controls 78 percent of Wipro, said “it would make sense” for his son Rishad to succeed him eventually as non-executive chairman, though he said he has no plans to step down for at least the next 24 months. The son was promoted to chief strategy officer in September 2010, reporting to Chief Executive Officer T.K. Kurien.
Net Worth

The chairman took over the reins of his father’s business after he died of a heart attack in 1966. Azim Premji was 21 years old and had three months left in his engineering program at Stanford when he returned home to helm the then $2 million business, which he transformed over 40 years from a vegetable oil and soap maker into a software services provider with a market capitalization of $18 billion.

He is currently ranked No. 40 on the Bloomberg Billionaires Index with a net worth of $15.3 billion. He donated $2 billion of Wipro shares in December 2010 to a trust to fund his foundation, which is focused on education.

Wipro isn’t the only Indian company looking for deals while shunning the services of investment banks. Billionaire Ajay Piramal in an interview last month said he may spend $1 billion to acquire biotechnology and defense assets for his health care- to-real estate empire without the help of bankers, who he said don’t “add much value.”

The attitude underscores the challenge facing global companies such as Goldman Sachs Group Inc. and UBS AG as they try to squeeze revenues from a country where fees are 20 percent of those in China, according to New York-based researcher Freeman & Co.

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net
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