Strategic Expansion through M&A: LTTS’s Acquisition of Intelliswift to Elevate Software Product Engineering Capabilities

Trend Analysis: Mergers and Acquisitions in Digital Engineering IT Services

Traversing through turbulent markets in 2024, the IT industry experienced a surge in mergers and acquisitions (M&A), particularly within the digital and product engineering sectors. Avasant’s Digital Engineering Services 2024 RadarView™ shares that over 60% of service providers have actively pursued inorganic growth through acquisitions since 2023. This trend is fuelled by an imperative to enhance digital engineering capabilities, expand geographical presence, and improve service offerings across targeted sectors.

LTTS and its Strategic Acquisition

In line with the trend, on November 11, 2024, L&T Technology Services Limited (LTTS), headquartered in Vadodara, Gujarat, officially announced its acquisition of Intelliswift, a software engineering services firm headquartered in Newark, California. The acquisition, valued at over USD 110 million, seemed to be a calculated investment into LTTS’s future. The article will delve into the many merits of this acquisition while also highlighting key focus areas that require attention.

This acquisition is designed to significantly enhance LTTS’s capabilities in software product development, platform engineering, digital integration, data, and AI. Intelliswift will operate as a wholly-owned subsidiary of LTTS while retaining its brand identity in the near term. Historically, LTTS has excelled in VLSI design and embedded software engineering but has identified the need to fortify its application layer and software engineering capabilities. The strategic acquisition of Intelliswift decisively addresses this gap and positions LTTS to serve major sectors such as retail and fintech—both of which are critical to driving product and software engineering expenditures. In the automotive sector, this acquisition amplifies LTTS’s software-defined vehicle capabilities through services and frameworks, including iCAN (Intelliswift Cloud Adoption Navigator), ICAP (Intelliswift Cloud Adoption Program), and Conversion Factory. These are a few key areas where LTTS had previously faced limitations.

The Positives

1. Enhanced Capabilities: Intelliswift brings robust software product engineering, cloud transformation, data engineering, and AI competencies that will greatly enhance LTTS’s offerings.
2. Market Expansion: This acquisition empowers LTTS to capture a larger market share, particularly in high-growth areas like hyperscalers, fintech, and retail. LTTS expects the acquisition to enable a better experience, particularly in digital commerce and e-commerce.
3. Client Synergies: With a client roster including over 25 Fortune 500 companies, Intelliswift provides LTTS with a stable and diverse portfolio, with these accounts generating 80% of its revenue.
4. Technological Boost: Intelliswift’s advanced frameworks and tools in cloud, AI, and data integration will complement LTTS’s current offerings. This should help them continue to focus on ER&D-related work and maintain higher margins.
5. Revenue Growth: The combination of capabilities in hardware, system engineering, and product software development is poised to drive significant revenue growth, such as servicing common hyperscaler clients with end-to-end portfolios and creating synergies.

Focus Areas

1. Integration Challenges: Merging operations and cultures is inherently complex; however, LTTS, we anticipate, is equipped to manage these challenges and realize substantial synergies.
2. Cost Pressures: Both companies have made substantial investments to strengthen their capabilities, which may elevate short-term costs. As they expect significant returns from these investments, focus on revenue growth will be critical to managing these pressures, especially in FY 2025-2026.
3. Diverse Revenue Models: With Intelliswift revenue per employee (FTE) exceeding LTTS’s—driven by a more on-site and higher billable value of work, the integrated delivery model must evolve effectively. Close monitoring will be essential to meet the expectations of common clients seeking uniform billing rates.

Our Analysis

The acquisition of Intelliswift by LTTS stands as a strategic maneuver that aligns with the prevailing trend of M&A in the IT industry. By substantially enhancing its software product engineering capabilities and broadening its market reach, LTTS is strategically positioned to capitalize on growth opportunities in the digital engineering landscape. The inclusion of Intelliswift’s technological expertise, particularly in hyperscalers, will undoubtedly catalyze significant revenue growth and fortify LTTS’s market position.

However, the success of this acquisition hinges on the effective integration of talent, skill retention, adept management of cost pressures, and a resolute commitment to doubling revenue from Intelliswift as planned. LTTS must navigate prevailing market uncertainties to ensure that the newly combined entity can deliver on its ambitious growth objectives.

Conclusion

In conclusion, the momentum of M&A activity in the IT industry—especially in digital and product engineering—is poised to continue as companies aggressively seek to bolster capabilities and expand their market presence. LTTS’s acquisition of Intelliswift is a prime example of this trend, promising substantial benefits while also presenting challenges that must be systematically addressed. With decisive management and strategic focus, LTTS should leverage this acquisition to achieve much-needed growth and cement its position as a top-tier provider of engineering and technology services.

By Rohan Sahoo, Senior Research Analyst, Avasant, and Praveen Kona, Associate Research Director, Avasant