AI-driven growth of TCS makes its M&A strategy more aggressive

TCS's $700-million buyout of Salesforce firm Coastal Cloud highlights a stronger AI-focused M&A strategy, but analysts view the valuation as steep and note the market's muted response

Even as Tata Consultancy Services (TCS) on Wednesday announced one of its largest ever acquisitions, the market reaction remained subdued. While analysts considered the deal expensive, many agreed that AI-driven growth is pushing TCS to become more aggressive in its mergers and acquisitions (M&A) strategy. 

 

India’s largest IT services provider announced the acquisition of US-based Coastal Cloud in an all-cash transaction of $700 million. The last such acquisition TCS did was in 2008, when it acquired Citigroup’s captive BPO arm Citigroup Global Services for $505 million. 

 

On Thursday, TCS stock opened at ₹3,206 per share, up marginally by 0.56 per cent. The stock closed at ₹3,191.6 per share, marginally up from the previous day’s close of ₹3,188.15 per share. 

 

TCS announced the acquisition of Coastal Cloud, a Salesforce consulting firm, specialising in enterprise-scale transformation. Analysts who track TCS believe that the acquisition is expensive. According to the filing, Coastal Cloud’s consolidated revenue for FY24 was $132 million and for the last 12 months was $141 million. The acquisition gives TCS access to 400 Salesforce certified personnel in the US. 

 

“The price they have paid for the asset seems to be higher than what their peers in the past have paid for Salesforce consulting capabilities. But we need to further understand what additional capabilities they are acquiring,” said an analyst on condition of anonymity. 

 

Peter Bendor-Samuel, founder and executive chairman, Everest Group said the M&A startegy reflects the changing time. "TCS is clearly starting to come to grips with the new market dynamics unleashed by AI. As industry growth slows in the traditional labor arbitrage sector and then starts to contract TCS is looking for growth in new sectors. However, the game is changing and TCS finds that it’s grow your own approach is insufficient to drive the growth necessary in the changing market."

 

Coastal Cloud will be the second acquisition of TCS focused on acquiring Salesforce capability. 

 

“Customer relationship management (CRM) data is very crucial, especially in the AI world where access to data is important for any transformational change. Both these acquisitions will give TCS significant access to such deals,” said Pareekh Jain, founder of Pareekh Jain Consulting and ERIIT. 

 

Hansa Iyengar, Practive leader- IT services & BFS, HFS Research believes by targeting Salesforce consulting capabilities TCS is making a smart move as it is the system-of-engagement of choice for most large enterprises. "Customer experience/operations are the earliest adopters of most tech innovations including AI, given the quick ROI and ease of scaling." Some of the analysts that Business Standard spoke to said that TCS charting an aggressive inorganic route was evident when the firm announced top management changes in April this year. As part of the changes the company announced the appointment of Aarthi Subramanian as the chief operating officer and Mangesh Sathe as the chief strategy officer.

 

"They will have to do more of these acquisitions if they are to keep pace with the rapidly changing market. The move to change out their strategy leadership is also related to this shift in thinking and is an indication that TCS is finally taking these changes seriously," added Bendor-Samuel.

 

Many also pointed out that it is about time TCS gets its inorganic expansion in focus. With ₹1.06 trillion as cash reserves as of September 30, 2025 acquisition should not be an issue.