Accenture to spend $1.7 bn on acquisitions in FY21 to ride digital transformation wave

Riding on a global digital transformation wave, Accenture, like most cash-rich IT (information technology) services companies, will lean on an inorganic strategy to build capabilities quickly for changing market demands. The firm will invest at least $1.7 billion in acquisitions over the next 12 months, chief financial officer KC McClure told investor analysts earlier this week during its first quarter earnings call.

Accenture has invested nearly $500 million towards M&A already, which included 10 acquisitions in the first quarter alone in strategic areas such as cloud and Industry X. 

‘Industry X’ is its approach to use advanced technologies to reinvent products and services from design and engineering to manufacturing and support.

The company also raised its revenue guidance from the earlier 2-3% to a healthier 4-6% in the current earnings call. Analysts tracking Indian IT firms look to Accenture as an indicator of how the enterprise technology market is shaping. Accenture’s fiscal year is from 1 September to 31 August.

In its first quarter, Accenture’s sales of $12.9 billion was around $2.5 billion more than what it clocked in the first-quarter of the past two fiscal years. The Accenture numbers were a cause for cheer on the Indian stock markets. The Nifty IT index hit a record high of 23,611, up by 3.36% on Tuesday. 

HCL technologies posted a 4.98% rise, while Infosys, Tech Mahindra and TCS clocked 3.67%, 4.17% and 1.86% respectively. This was followed by a choppy trading session on Monday, when Indian markets were spooked by news of a new strain of Covid-19 originating in the UK.

Read: Accenture rejigs top team, elevates Bhaskar Ghosh as CSO 

Accenture’s revenues were led by the North America market, a region that accounts for more than 77% of Indian IT’s revenue. It contributed $5.5 billion with a 4% growth, followed by $4 billion from Europe and $2.3 billion from its growth (other) markets.

For its second quarter of the 2021 fiscal, Accenture expects revenue to be in the range of $11.55 billion to $11.95 billion. The company also delivered strong new bookings of $12.9 billion, a 25% increase over Q1 last year (September to November 2019).

Read:  Accenture commits $3 bn for cloud-first initiative, appoints Karthik Narain to lead unit 

Accenture’s strong recovery is seen as a good indicator for tier 1 Indian IT companies as they also focus on the digital growth opportunities that Accenture targets globally.  

The firm expects its services in cloud to grow in double digits and to fuel its growth moving forward. Cloud currently counts for 30% of the company’s revenues. 

“In FY20, our cloud revenue was approximately $12 billion, with low double-digit growth,” Julie Sweet, CEO of Accenture, told investor analysts on 17 December. “(This has) accelerated in Q1 with significantly higher double-digit growth, driven by Accenture Cloud First.”