Overview:
On November 1, 2018, TCS acquired W12 Studios, a London-based digital design agency. This is TCS’s first acquisition in over 4 years – it last acquired CMC Limited, a systems engineering and integration company, in October 2014. This also marks its first acquisition in the digital space, which has been the most sought-after area of acquisition by technology services firms for past few years. Until now, TCS had successfully followed a purely organic strategy to build its digital business. The companies have not disclosed financial details of the transaction.
Founded in 2012, W12 Studios is a digital design agency that helps organizations in creating interactive experiences and products for their customers. Based in London, the company has expertise across visual, interaction, motion, sonic, and creative technology. It has worked with several marquee clients including F1, CNN, Vevo, Fios TV, Shazam, and Vodafone. The company will be integrated into TCS Interactive, TCS’s digital and design thinking division.
Valuation:
Typical of the transactions in this space, TCS has not released much details regarding financials of the transaction. According to reports, W12 is estimated to have around 50 employees. Similar companies have been valued at around 2.0-2.5x sales, depending on the size, revenue growth, and margins of the business.
Technology services companies have been acquiring digital and customer experience agencies to strengthen their digital business and front-end consulting capabilities. Recent deals in the space include Infosys’ acquisitions of Wongdoody, and Brilliant Basics, Wipro’s acquisition of Cooper Software, Zensar’s acquisition of Indigo Slate, and Accenture’s acquisitions of Altima, Matter, and Clearhead Group.
Transaction rationale:
The acquisition will help TCS to gather a larger share of the global digital spend, especially by the CMOs. Its rivals – Accenture, Infosys, Wipro, and others have made multiple acquisitions in the space. Accenture has made a string of small acquisitions to build out its interactive division – it now generates about $8bn in revenue per year from its digital marketing business.
TCS has been successfully able to build its digital business organically, which now contributes c.28% to its total revenues. However, it had been lacking capabilities in the digital experience and design space, which it will hope to supplement with this acquisition. The acquisition will also help the company in achieving its goal of generating $5bn revenues from digital technology in FY 19 from current $4bn in FY 18.
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