ESV Times | Monthly Newsletter | May 2025

IT M&A: Acquisition as a Growth Tool

For mid-sized Indian IT firms, organic growth is no longer enough. As companies hit the ₹50–150 crore growth ceiling, the strategies that once propelled them—founder-led sales, delivery excellence, and gradual capability expansion—start to lose momentum. The result? Sluggish growth, compressed margins, and rising client concentration risks.

Having worked with firms navigating this ceiling, a pattern has become clear: acquisition is one of the few levers capable of addressing the compounded internal and external growth constraints mid-sized firms face today.

Why M&A is Becoming a Strategic Imperative

For a company stuck in the ₹50–150 crore range, scaling through acquisition solves three critical challenges at once:

1. Capability Acceleration: Building a new vertical or competency in-house takes 18–24 months—assuming you can attract the right talent. With customer demands evolving rapidly, few companies can afford to wait. Acquiring a niche specialist firm gives immediate access to delivery capability, experienced leadership, and client trust in a fraction of the time.
2. Market Access and Qualification Thresholds: Today, 60%+ of enterprise RFPs above ₹10 crore require vendors with ₹250+ crore in annual revenues. That rules out most mid-market players, regardless of their technical merit. Acquisitions allow firms to combine revenues, talent, and geographic presence to meet qualification thresholds and unlock large-deal access.
3. Geographic Expansion: Expanding into the US, Europe, or even non-metro Indian markets organically is costly and slow. Acquiring a local player with an existing sales footprint, delivery team, and client relationships helps firms bypass the friction and risk of greenfield expansion.

The Changing M&A Landscape in Indian IT

The Indian IT services sector is undergoing rapid consolidation. Mid-market M&A activity has surged by 37% year-over-year, with both domestic and international firms actively acquiring to fill capability gaps, deepen vertical expertise, and shore up delivery capacity.

Acquisitive mid-sized firms are beginning to outpace their peers on both revenue growth and valuation multiples. Investors are rewarding firms that pursue bold, inorganic strategies with clear integration roadmaps.

Successful firms approach M&A as a long-term growth engine, not a one-time transaction. They invest in internal deal teams, define acquisition theses, and build robust post-merger integration (PMI) capabilities. The objective isn’t just buying scale—it’s buying strategic leverage.

From Optional to Essential

Acquisition is no longer the domain of tech giants and PE-backed consolidators. It is becoming a core competency for ambitious mid-sized firms navigating the new realities of IT services.

Whether it’s to break into new markets, unlock enterprise sales, or build new capabilities, M&A offers a way to compress time and leapfrog constraints. For founders facing a plateau, it may be the only viable path forward.

At Ecosystem Ventures, we work closely with founder-led and mid-market IT companies navigating this growth ceiling. Whether it’s identifying the right acquisition target, structuring the deal, or integrating for long-term success, we bring hands-on support, strategic guidance, and investor alignment to help transform M&A from a one-time opportunity into a repeatable growth engine.

For founders looking to break past the plateau and build lasting enterprise value, now is the time to think bigger.

Regards

Abhishek Sanghvi

Ecotone

Venture capital isn’t just about writing cheques — it’s about showing up with insights, networks, and hands-on help when it counts.

Abhishek Sanghvi, Founder of Ecosystem Ventures and Nikhil Kaushik, Partner at Ecosystem Ventures unpack what real founder support looks like — beyond the buzzwords.

Link

Introducing Our Blog Series: Cracking the Mid-Market IT Growth Code

Penned by our Strategic Advisor, Rahul Vaidya, this blog series dives deep into the unique challenges faced by India’s mid-sized IT firms. From hitting the ₹50–150 crore growth ceiling to navigating structural barriers and exploring M&A as a growth lever, the series offers sharp insights for founders and operators looking to break out of stagnation.

So far, we’ve covered:

• The ₹50–150 Crore Growth Ceiling: Why most IT companies stall in this range and how it impacts long-term scale and valuation…..Read the blog
• Why Organic Growth Isn’t Enough: A closer look at the internal bottlenecks and external roadblocks limiting growth…….Read the blog

Join the conversation on LinkedIn:

🔹 Blog 1 Post
🔹 Blog 2 Post

More insights are on the way as we continue uncovering strategies for sustainable growth—stay tuned!