Innovative acquisitions

The latest deal announced by the country’s largest software company, Tata Consultancy Services (TCS), has underscored the need for tech firms to innovate and explore unconventional acquisitions. Last week, the company announced a five-year strategic partnership with German auto major Porsche, as well as an agreement to buy the luxury carmaker’s information-technology (IT) and management consulting subsidiary MHP Management-und IT-Beratung GmbH. TCS’ simultaneous deals with Porsche and MHP are being valued at around $1.5 billion and $373 million, respectively. Significantly, in sync with the times, the Porsche partnership will focus on industrialising artificial intelligence (AI) across operations, among other functions. With traditional mergers and acquisitions in the IT sector drying up in a fast-changing tech landscape, bundled deals may be the way to go. Besides TCS, some other IT companies are also opting for deals that package acquisitions and cutting-edge service-related agreements in parallel. Among others, Wipro signed a multi-year digital transformation deal earlier this year with Singapore-headquartered food and agriculture major Olam Group at an estimated value of $1 billion, while acquiring its IT subsidiary Mindsprint for $375 million. 

This strategic route will enable tech companies to stay relevant in an AI-engulfed world. Several AI leaders, historians and tech executives have highlighted the advantages and risks of AI power in their own way. Elon Musk, founder and chief executive officer (CEO) of Tesla and SpaceX, has projected that AI would overshadow human capabilities within five years. Microsoft cofounder Bill Gates has argued that this unprecedented technology (AI) demands an unprecedented global response, adding that AI will either be the greatest equaliser ever invented or the worst source of injustice. Nvidia CEO Jensen Huang has opposed Mr Gates’ proposal of taxing robots, stating that AI may disrupt some jobs but will be a net job creator. Historian Yuval Noah Harari has pointed out that the AI battle is about trust shifting from humans to algorithms at a superfast pace. According to Mr Harari, this is the time to ask questions and that it might be too late by 2028 and certainly too late by 2036. 

Against this disruptive backdrop, Tata Sons and TCS Chairman N Chandrasekaran recently referred to AI as a foundational and civilisational shift. Comparing AI’s infrastructural significance to landmark inventions like steam engine and the internet, Mr Chandrasekaran pointed out that AI was an opportunity that would unlock demand. At the same time, he told shareholders at the TCS annual general meeting in June that the company would have as many AI agents as human workers within the next few years, implying that traditional hiring would moderate. Even as AI has begun impacting the IT sector, including job losses at big tech, especially at entry levels, recent studies have shown the creation of specific AI roles in many companies. In the April-June quarter of FY27, TCS reported a net addition of 9,279 employees, with the headcount touching 593,798. This is the biggest quarterly net addition for the company in three years. The development follows the large-scale downsizing in the company last year, indicating possible redeployment as well as a demand for AI-related jobs. 

At a time when the world is in the midst of a paradigm shift, imaginative pacts such as the one signed between TCS and Porsche may offer a template for the IT industry in long-term value creation and strengthening the deal pipeline.