AI rush drove nearly half of IT sector M&A deals in past two fiscals: Crisil

Artificial intelligence (AI) has moved beyond being a delivery lever for India’s information technology (IT) companies to become a key acquisition driver, with nearly half of the mergers and acquisitions (M&A) undertaken by the country’s top IT firms over the past two fiscals linked to AI and allied capabilities. 

An analysis of acquisition rationales across 26 leading Indian IT companies shows that AI, along with capabilities such as data engineering, digital engineering, engineering research and development (ER&D), and enterprise platforms, has emerged as a defining theme of recent transactions. 

The shift comes as clients move from AI pilots to enterprise-scale deployments, prompting IT service providers to accelerate investments in specialist talent, proprietary platforms, and domain-specific capabilities. For companies, acquisitions offer a way to compress capability-building timelines and respond faster to changing technology demand. 

“AI has become a strategic acquisition trigger for Indian IT companies. The objective is not merely to add scale, but also to enhance relevance through specialist talent, domain-ready platforms, marquee clients and sharper go-to-market capabilities,” said Aditya Jhaver, Director, Crisil Ratings. 

“In a rapidly evolving technology cycle, acquisitions can shorten capability build-out timelines from years to months and help companies remain competitive as enterprise AI adoption gathers pace,” he added. 

The trend marks a departure from the period between fiscals 2019 and 2024, when M&A activity among Indian IT companies was largely focused on strengthening digital capabilities such as cloud computing, process automation and analytics, as well as expanding geographical presence. 

Of around 90 M&A transactions assessed across the sector, acquisitions in the past two fiscals have increasingly centred on AI and adjacent technology capabilities. 

The renewed focus on inorganic growth also comes against the backdrop of softer discretionary technology spending, pressure on traditional IT services growth and rising demand for AI-led transformation. These factors are pushing IT companies to sharpen their portfolios, deepen industry expertise, and acquire differentiated platforms and specialist talent in priority markets. 

US, Europe remain key hunting grounds 

Most of the acquisitions in the past two fiscals were outbound, with more than 70% of the targets based in the US and Europe. 

The two markets offer deeper pools of AI talent, proprietary technology platforms and sector-specific intellectual property, making them attractive destinations for Indian IT companies seeking to rapidly build globally relevant capabilities. 

The acquisition strategy is particularly focused on areas such as generative AI, agentic AI, cloud-native platforms, digital engineering and industry-specific automation. Besides technology capabilities, acquisitions can provide access to referenceable clients and enable companies to embed new offerings into their existing portfolios more quickly than through organic investments. 

Limited balance-sheet impact 

Despite the acceleration in M&A activity, the inorganic push has so far not materially weakened the balance sheets of Indian IT companies. Most transactions have been funded through internal accruals, existing cash reserves or share swaps, with limited dependence on debt. 

“Deal discipline has played a vital role in preventing credit profile slippages. Most acquisitions have been modest relative to the acquirers’ net worth and funded largely without material debt,” said Joanne Gonsalves, Associate Director, Crisil Ratings. 

As a result, AI-led M&A is not expected to materially impair the credit profiles of IT companies, provided they maintain financial discipline and execute integration effectively. The bigger test, however, will be whether the acquired capabilities can be successfully integrated and monetised. Talent retention, cross-selling opportunities, integration with existing offerings and the ability to generate incremental revenue from AI capabilities will determine whether the deals translate into sustained business growth. 

“While AI-led M&A should strengthen business positioning, we do not expect it to materially impair credit profiles, provided companies integrate assets effectively and avoid stretching balance sheets in pursuit of transformative bets,” Gonsalves added.