Digital Services In Transition: Tech Services Acquisitions In 2017

Amanda LeClair
Analyst
October 23, 2017

Digital transformation is a business transformation.  To help orchestrate the associated cultural change, modernization of legacy technologies, and cross-functional organization structures, many companies seek help from a third-party services provider. Forrester data indicates that over 50% of services decision-makers have hired a management consultant or technology firm in the last 12 months.

But the services providers are also under pressure to transform:  in order to lead clients on a transformation journey, they must rapidly become experts in bleeding edge technologies and digital competencies. To keep pace, major services firms have pulled out their wallets to buy missing capabilities or bolster existing ones. 2017 thus far has proven to be a continuation of the acquisition spree that has changed the marketplace over the past few years.  Major services providers such as Accenture, Capgemini, Deloitte, EY, IBM, Infosys, PwC,  TCS, and others all participate in these acquisitions.

DIGTAL SERVICES: 2017 ACQUISITION OVERVIEW

Forrester has been tracking acquisition announcement press releases from 16 of the top services firms. With Q4 2017 underway, Forrester analyzed over 70 publicly announced acquisitions already this year.* Below is a brief summary of the acquisitions we tracked in 2017, by focus area:

Across these acquisitions, we see:

  • Cloud acquisitions balance expanding regional/implementation services and new capabilities. Accenture’s acquisition of PhaseOne helps deepen Accenture’s Salesforce expertise in the federal market, while PwC’s acquisition of Salesforce reseller Agilitude expands it’s global delivery footprint in Africa. Meanwhile, from a cloud tooling standpoint, Microsoft bought both Cloudyn and Cycle Computing to bring in cloud management and cost optimization and cloud computing tools respectively to reinforce Azure.
  • Design and customer experience (CX) continue to be hot focus areas for acquisitions. Trends in buying agency capabilities in areas like design, digital experience, and customer experience show no signs of slowing down in 2017. Infosys’ acquisition of Brilliant Basics, a digital product and customer experience studio, extends their physical design deliver capabilities in EMEA. BCG’s purchase of MAYA, a digital design and innovation lab, brings in roughly 30 new employees in design and R&D.
  • Software development and implementation services bolster existing bread and butter services. Many services providers still see the majority of revenues coming from existing packaged implementation services streams. For example, EY purchased SAP reseller Brightree earlier this summer.
  • Acquisitions in data and analytics, strategy and innovation, and digital marketing create innovative offerings. KPMG’s purchase of Matchi.biz will help the company match its fintech clients to innovative fintech services and products through the Matchi platform. HCL acquired ETL Factory Limited for its data automation platform to accelerate data-migration and data-integration projects. Lastly, Deloitte will repurpose Web Decisions’ expertise in omni-channel data management and marketing services to enhance its Customer Experience Value (CXv) offering.

FIVE IMPLICATIONS TO WATCH IN 2018

The hot acquisition focus areas we see from services firms are well-aligned with the areas we identified in a recently published inquiry analysis of services questions fielded by Forrester analysts (see the report here).  As we continue monitoring acquisitions through the rest of the year and looking forward to 2018, watch for:

  • Vendors entering a digestion phase for acquisitions. Vendors tell us they face challenges of integrating the acquisitions and maximizing their value. While we do not see any signs of acquisition activity decreasing in 2018, services providers must prioritize integrating the newly purchased technology and people assets if they want to deliver on claims to deliver true end-to-end transformation.
  • New Opportunities in next generation cloud services. Cloud implementation and migration services will continue to be a source of growth for many of the top services providers. Cloud is one of the top acquisition focus areas in 2017 and we expect to see that trend continue. Clients working with a services provider in these areas should push outside the traditional boundaries for the next generation cloud capabilities. (For example, Microsoft’s acquisitions include capabilities for cloud management and cost optimization and cloud computing).
  • Acquisition heat shifting to emerging technologies in AI. After 5 years of digital agency acquisitions, we expect the overall acquisition profile to shift. Most services providers have already begun building out AI platforms, including examples such as Accenture myWizard, HCL DryICE, TCS ignio, and Wipro HOLMES. We expect to see growing focus in emerging technology acquisitions as providers augment services offerings and delivery with deep learning capabilities.
  • Security practices and risks becoming a critical element of evaluating acquisition targets. In 2016, 56% of all network security decision-makers that had a security breach within the past 12 months said that the breach occurred because an internal or external business partner/third-party supplier was attacked. Highly publicized security breaches will elevate security as a critical evaluation criteria of potential acquisition targets.
  • A shifting focus for services buyers. Forrester fields questions from clients about what new capabilities their providers may have acquired since the last formal review. The pace at which services firms are buying and bringing in new capabilities will create new responsibilities for services buyers, who should be tracking acquisitions as a part of evaluating portfolios. As the core value proposition for technology services continues to shift, we expect changes in what clients buy, how they buy and how they manage services partners.

Look for my upcoming research on the new ways to purchase technology services, which will explore digital ecosystem management, new pricing models, and new engagement models.

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*Forrester acknowledges this is not an exhaustive list of all the acquisitions made by these firms in 2017.

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