How M&A appetite of Brazil’s CI&T is fueled by ‘fragmented’ digital market

Brazilian IT multinational CI&T is ready to pursue a more M&A-fueled expansion, according to its CEO.

With over 25 years of operation, the firm has only made four acquisitions.

In comparison, fellow Brazilian IT multinational Stefanini made six acquisitions in 2020 alone, for a total of 30 M&A deals since it was founded in the late 1980s.

CI&T’s largest deal to date came on Thursday when it unveiled the acquisition of local software firm Dextra. The parties did not disclose the value of the transaction.

“This is our most relevant acquisition and reflects a market moment and a strategic issue,” CI&T CEO Cesar Gon (pictured), told BNamericas about the Dextra purchase. The transaction value was not revealed.

"We think that the digital transformation services market is very fragmented and very hot. And our view is that now, given the size that our company has reached, we can be a little more aggressive in our inorganic growth strategy.”

Fragmentation in the form of a large number of players with similar market share, offers opportunity for CI&T to position itself as a consolidator, especially in the services integration segment, said Gon.

The company recently created a special unit to evaluate potential M&As under three premises: geographic expansion, new verticals or the strengthening of existing business segments, and human capital. 

"M&A can be a strategy to accelerate our global talent network," Gon said.

Although not a main driver, venture capital investments have not been ruled out and could be useful to breed innovation, according to the executive.

Data compiled by Transactional Track Record shows that the technology sector was responsible for the highest number of Brazil’s 693 M&As in the first five months, increasing 88% year-over-year to 287.

Looking at the last 20 years, KPMG reported that Brazil saw a record number of M&As in 1Q21: 375 transactions of which 244 were between local companies.

The busiest segment was technology, with large firms buying startups, said KPMG, who carried out its survey with companies from 43 sectors.

Besides M&A, Gon said the company could follow in the footsteps of rival Stefanini and launch an IPO on US stock exchange Nasdaq, possibly this year.

FOOTPRINT

CI&T operates in seven countries outside of Brazil: the US, Canada, UK, Portugal, Japan, China and Australia.

Latin America is currently not a target for the company, but Gon does not rule out M&A moves in the future as a way to acquire human capital.

For its expansion CI&T is betting on continued strong demand for digital transformation, which was accelerated by the COVID-19 pandemic., As economies reopen and social distancing measures are relaxed, the executive does not see a slowdown in demand.

Financial services, consumer goods, health & lifestyle and retail are the company's top verticals. 

Its largest clients include Cielo, Google, HP, Itaú, Bradesco, ABInbev Johnson & Johnson, Motorola, Nestlé, Porto Seguro, SulAmérica and Vivo.

The company does not publish revenue figures, but CI&T has seen revenue growth during 26 consecutive months, according to Gon.