Wipro goes big and bold with its BFSI and consulting-driven acquisition of Capco
The pandemic economy has leveled the playing field for many service providers—and Wipro is no exception. Enterprises must move at speed to make themselves work-from-anywhere capable, and they need partners they can trust to provide the skills, resources, and urgency to get them there without any significant escalations.
Wipro has consistently been a dependable, stable service provider, winning its fair share of IT, operations, and infrastructure services deals—enough to keep growing at a mid-single-digit clip. But it has always been hard to identify where the firm has been genuinely excellent; it tends to fall just short of the coveted role of “end-to-end transformation partner” and slipped behind the continuous double-digit revenue growth afforded the other Indian-heritage providers.
Sometimes the only remedy is a shock to the system… a new dynamic CEO combined with a pandemic is working wonders for Wipro’s mojo
Cue an unexpected choice for the role of CEO (Thierry Delaporte) and combine it with a global pandemic. This heady mix is yielding some notable leadership house cleaning (in the form of senior executive streamlining), a reorganization and refined operating model based on a location approach similar to the recent Accenture re-org, some notable big deal wins, and, of late, the biggest acquisition in its history of Capco with a cool $1.45 billion price tag. This is the new, reinvigorated Wipro, working to reinvent itself as a differentiated partner of choice in the post-pandemic world with an energized leader, deep footprints in financial services, and an international network.
However, Thierry Delaporte and his new leadership team must get the integration of Capco right to gain an edge in this strange but extremely competitive market. The reality is Wipro’s track record of acquisitions has been patchy at best. However, with Delaporte, Wipro has a leader steeped in experience from the school of messy acquisitions from his Capgemini career, when the firm learned the hard way how to get these integrations working. Capgemini’s major acquisition of IGATE in 2015 has proven to be one of the most successful services acquisitions in history because it combined minimal client overlap with strong synergy between offshore and onshore expertise in financial services. At HFS, we view the Wipro/Capco fit in a similar light—limited client overlap and long-term strategic opportunity. In fact, the Capco employees we have spoken to welcome the move and see the future potential.
The skinny on Capco—a consulting firm with a robust BFSI pedigree supporting change initiatives
Capco is a consulting firm with rich expertise in the BFSI (banking, financial services, and insurance) space. Headquartered in London, it provides digital, consulting, and technology services to financial institutions in the Americas, Europe, and the Asia Pacific region. Founded in Belgium in 1998 as The Capital Markets Company NV, Capco was rebranded to its current name in 2001. Since then, the company has entered growth-driven transactions that included BFSI-focused Fidelity National Information Services (FIS) signing a deal with Symphony Technology Group to buy it for approximately $300 million in 2010, allowing Capco valuable experience in both the BFSI industry and the wider business transformation sphere. In 2017, Capco became an independent company when FIS sold a majority stake to Clayton, Dubilier & Rice (CD&R), a private equity firm based in New York.
Capco brings roughly $700 million in revenue, 5,000 consultants, and 100 clients pretty evenly split between the Americas and Europe with growing representation in APAC. Critically, 30 of Capco’s clients are new to Wipro and represent a mix of global brands and mid-tier firms. Capco has cultivated deep domain expertise in regulatory risk and compliance, payments, and capital markets platforms, all generally working with C-suite and board-level leadership within banks. It also has growing capabilities in insurance and energy and commodities trading. While the consulting footprint alone is highly complementary to Wipro’s technology build-and-run skills, Capco’s alignment with BFSI leaders outside the CIO domain represents a needed expansion to broader decision makers. Rajan Kohli, Global Managing Partner of Wipro’s iDEAS global business line, described Wipro’s mission with Capco as “to build end-to-end services from think to design to build to operate.” If Wipro can get the integration right, it can propel the combined firms into a distinctive leadership role in the coveted and highly competitive BFSI markets.
COVID-19, an unwelcome guest for our planet, brought with it the chiming of digital bells in global businesses
COVID-19 forced global businesses to stare at two-pronged imperatives to survive as they woke up from the hibernation of the pre-COVID era: ensuring cash flow remained steady while driving digital transformation with a purpose. These imperatives became critical aspects for any company hoping to stay afloat and plan for growth in the post-pandemic economy. They also created an opportunity for IT service providers to focus on supplementing their existing solutions and services with domain-specific digital consulting services for their client organizations. Exhibit 1 provides a view of enterprises’ business initiatives and spending priorities that created the need for digital consulting expertise—and it’s clear that Capco’s offerings align with the post-pandemic demand trends.
Exhibit 1: The COVID effect on external services spending favors digital
To what extent will you increase or decrease spending on external services?
Sample: 400 executives across global 2000 companies
Source: HFS Research 2021
The continued elevation of BFSI within Wipro
Wipro’s heritage is IT services, with substantial depth in applications services and the cloud. Over the past five years, it went deep on design capabilities off the heels of its DesignIt acquisition in 2015. Wipro integrated DesignIt and other subsequent design-focused acquisitions with its engineering capabilities to create a decently robust design and build capability—mostly focused on reinventing client journeys in the BFSI space.
BFSI is Wipro’s largest industry segment by revenue, contributing about 30% of its approximately $8.25 billion 2020 revenue. Capco significantly expands the BFSI consulting capabilities Wipro has been building for the past few years. At last count, HFS estimated Wipro has 2,000 BFSI consultants. Capco will jack this to 7,000, giving it one of the largest BFSI talent pools outside of the Big 4. It will also add 30 net new clients to Wipro’s existing 200+ BFSI clients.
Wipro must retain key leadership and consultant talent from Capco. The key to inspiring its BFSI clients will be to align consulting, design, build, and operate capabilities around solving the biggest post-pandemic problems. For BFSI clients, this is namely modernizing legacy, reinventing offerings, and making data an asset, with the ever-present side dish of ensuring regulatory compliance.
The Bottom Line: Wipro’s acquisition of Capco looks like Yahtzee on paper. It must create a compelling end-to-end value proposition for its BFSI clients to make it succeed.
Wipro has all the right ingredients to become a dominant partner of choice for BFSI firms worldwide. The addition of Capco significantly amps its consulting and BFSI domain skills while bringing an impressive array of net new clients and limited overlap in capabilities for shared accounts. Capco’s focus on driving change with the C-suite outside of Wipro’s native domain of the CIO’s office drives further synergy and expansion potential. Wipro gets an enhanced tip of the spear, and Capco gets a mechanism to stay in accounts on an ongoing basis. It’s M&A Yahtzee.
However, Wipro’s Achilles’ heel has been its inability to craft end-to-end value propositions that logically link its array of capabilities. It has too often gone to market with siloed solutions that reflected its organizational structure, resulting in missed opportunities to craft broader silo-defying solutions. As it integrates Capco, paying close attention to retaining and incentivizing the rich talent and expertise therein, it must be diligent about building a strong narrative and clear capabilities around solving BFSI firms’ biggest post-pandemic challenges. The enhanced consulting capabilities will help Wipro identify the opportunities, but the resulting solutions must represent the company’s full depth and breadth.