Company Outsider | From buybacks to buyouts: TCS learns the Accenture playbook as outsourcing slows

Subscribe to enjoy similar stories. Company Outsider is a weekly newsletter by Sundeep Khanna. Subscribe to Mint's newsletters to get them directly in your email inbox. For two decades, Tata Consultancy Services (TCS) was synonymous with building.

While its global rivals, most notably Accenture, grew through acquisitions, TCS stuck to organic growth. Its scale and financial stability are clear evidence that the strategy has worked. This makes its recent acquisition of US-based Coastal Cloud for a whopping $700 million a strategic inflection point.

This deal is TCS’s largest acquisition since 2008 when it bought Citigroup Global Services Ltd for $505 million, a clear sign that the external forces reshaping the global IT landscape have become too potent for TCS’s organic engine to fully counter. Coming just about a year after Cognizant’s $1.3 billion acquisition of engineering firm Belcan, it suggests that IT services companies in India will increasingly be looking at large, strategic acquisitions for growth. The core reason for this is the reality of limp growth.

The big, decades-long outsourcing contracts that fuelled TCS's rapid ascent in the past, have dried up. In the current environment, defined by volatile global client spending and a cautious macroeconomic outlook, TCS’s revenue growth has sputtered, with analysts forecasting that its revenue growth is likely to be low-to-mid single-digit for the next few years. Acquiring specialized, high-growth firms like Coastal Cloud then are the only path to re-accelerating the top line.