Mid-tier IT firms turn to acquisitions to drive growth

Persistent Systems’ proposed takeover of Nagarro and Coforge’s recent multibillion-dollar acquisition of Encora underscore how mid-tier Indian IT firms are increasingly relying on acquisitions to accelerate growth, expand geographically and win larger transformation deals, as organic expansion becomes harder to sustain.

Persistent Systems’ wholly-owned subsidiary, Galaxy Germany Holding SE, on Saturday announced a voluntary public takeover offer for all outstanding shares in Nagarro to create a $2.9 billion global AI-led engineering powerhouse.

An Emkay report highlighted that the combined entity will have over 46,000 employees across over 40 countries, strengthening Persistent’s global delivery footprint. Forty per cent of Nagarro’s revenue is from Europe, making it complementary to Persistent, whose business has historically been North America-centric.

The acquisition increases Europe’s contribution from about 9 per cent to 22 per cent of pro forma revenue, creating a more balanced geographic mix. Post-acquisition, the IT player will have over $500 million in revenue scale across BFSI, HLS and TMT, over $400 million in Industrials, and over $300 million in consumer, enhancing its ability to win larger transformation deals while driving cross-selling opportunities across more than 350 marquee clients.

Acquisition strategies
The divergence in acquisition strategies between large IT firms and mid-tier players stems from different growth imperatives, operating models and financial expectations, explained Gaurav Vasu, CEO & Founder, UnearthInsight.

“Large firms operate under strong investor expectations to sustain industry-leading operating margins, typically in the high-teens to mid-20 per cent range, making them more selective about acquiring businesses that could dilute profitability. Mid-tier firms, on the other hand, cannot rely on organic growth alone if they aspire to scale rapidly. Given their smaller revenue base and comparatively lean sales organisations, acquisitions become an essential lever alongside organic expansion,” he said.

Once the companies reach the $1.5-2 billion revenue mark, sustaining high organic growth becomes more challenging. Inorganic growth allows mid-tier firms to add meaningful revenue, expand geographically, access new customer relationships, and achieve scale faster than organic execution alone would permit. As a result, M&A has become a structural component of the growth strategy for mid-tier IT firms, whereas for large players it remains a selective strategic tool rather than the primary growth engine.

Vasu added that while AI is often cited as a key driver for acquisitions, recent deal activity suggests it has not been the primary motivation. Among acquisitions in FY26 by mid-tier IT firms, only about 15-20 per cent have focused primarily on building core AI capabilities, while the majority — around 60 per cent — have been to strengthen digital engineering and cloud capabilities, while also adding scale, revenue and market access.

Examples include Cyient’s acquisition of Kinetic Technologies to strengthen semiconductor and analog/mixed-signal engineering capabilities, KPIT’s acquisition of Caresoft to expand automotive ER&D and mobility engineering, and Persistent’s acquisition of Aepona Group, primarily focused on expanding IT services scale rather than adding differentiated AI capabilities. The Hindu BusinessLine