Coforge–Encora and the AI-driven M&A pivot in Indian IT

In many ways, 2025 is a defining year for the tech industry, and it was more pronounced in India, as the industry once called a ‘sunrise’ has had to ‘sunset’ numerous aspects, from tech to skills. And the hero and the culprit for this overarching ramification is the seemingly benign, yet omnipotent two letter word ‘AI’. And AI is now a common denominator to ‘all things IT’, and service providers are looking at integrating AI capabilities into their tech stacks.

Like all disruptions, AI is now in the ‘rubber meeting the road’ moment, and increasingly one is seeing the emergence of three categories of organisations. The laggards (rooted in AI hype, with no solid outcome beyond PoC), the leaders (those who accept their native strengths and build an outcome amplified by AI) and the challengers, the new-age born-in-AI organisations. They don’t have a great legacy in tech, but are bringing path-breaking AI innovations that traditional tech orgs, in business for decades, could not build. This, in a way, serves as broader context of what we are seeing today, and every tech service provider is struggling to find their ‘True North’ to cash in on the AI disruption.

Pivoting at Speed: Banking on M&A

While much has been written about the 2026 tech outlook, increasingly one of the trends that is becoming evident is consolidation driven by AI. The recent announcement of Coforge’s intent to acquire Encora underscores how AI-driven capabilities can be built at speed in just one inorganic foray. In this case, the intent is explicit: build a larger AI-led engineering business with stronger cloud and data depth, and a wider presence in the Americas.

While it is tempting to treat this as just another “big ticket” acquisition, a better way to read between the lines is that it is a clear signal of how technology acquisitions, especially in IT services, have changed their purpose over the past decade. If we dig into a bit of history, post-Y2K, many deals chased scale, delivery capacity, and client access. In the 2010s, deals chased capability, digital, cloud, platforms. In 2025, the best deals chased something harder: value creation at speed. They aim to reduce time-to-outcome in a market where clients want transformation, but hesitate to fund it, and where AI is compressing the traditional labour model that once powered scale. Now it’s all about how you are blending digital labour with a human one.

From scale to value, what actually changed

The scale era was built on a simple promise. Give us the work, we will deliver it efficiently, at volume, with predictable margins. This model rewarded headcount leverage, bench strength, and a wide pyramid of entry-level talent.

The capability era changed this narrative. Today, clients did not just want delivery, they wanted modernisation, digital experience, cloud migration, data platforms and tangible outcomes. To address this evolving demand, Indian IT responded by buying consulting boutiques, cloud specialists, and platform partners. But that’s not enough for the AI age.

The value era is now forcing a third wave. Capability alone no longer wins. Clients now ask sharper questions: Can you show me measurable outcomes within a quarter or two, not a year? Can you modernise without escalating cloud bills? How can I quickly modernise my legacy without new CAPEX? Can you use AI to compress cycle time without breaking governance and security? This is why acquisitions now look like shortcuts to outcomes, not just additions to the portfolio. It’s a win-win deal, if they can manage the synergies well.

For instance, in the case of Coforge, it makes this framing easy. In its release, it positions Encora as AI-native, and lays out a value-heavy blueprint: an AI-led engineering, data, and cloud services mix that it expects to deliver around $2 billion revenue by FY27, with a combined “tech services powerhouse” narrative.

Dealbook 2025: The acquisition that defined the year

The Coforge pivot towards the big league of Indian IT is impressive. Once known as NIIT Technologies, Coforge has spent the last few years remaking itself from a steady mid-tier services player into a sharper digital and engineering-led firm. After Baring Private Equity Asia became a controlling shareholder in 2019, the company rebranded to Coforge in August 2020, framing the name as “co-forging” lasting value with clients and signalling a more ambitious growth agenda under CEO Sudhir Singh. The Encora acquisition pitch now takes that journey further, with Coforge seeking a bigger AI-native engineering footprint built on higher-value capability and stronger proximity to key client markets.

Beyond Coforge, let’s look at some interesting deals over 2025.

The TCS acquisition of Coastal Cloud (announced 10 Dec 2025) will enable TCS to acquire 100 percent of Coastal Cloud for $700 million all-cash, and positions the move as a step-up in Salesforce advisory and consulting, aligned to “AI-first, agent-driven transformation.”

Another interesting one was Wipro acquiring HARMAN Digital Transformation Solutions (announced 21 Aug 2025). Wipro positioned this deal as deepening engineering innovation and R&D excellence, with DTS becoming part of its Engineering Global Business Line after closure. Wipro also notes the transition of thousands of employees globally as part of the agreement.

And when we look at Infosys and Telstra, which announced a JV, Infosys acquired 75 percent of Versent (announced 13 Aug 2025, Versent is Australia’s leading Digital Transformation Solutions Provider, and a wholly owned subsidiary of Telstra Group). Infosys positioned the acquisition as a way to deepen the broader partnership with Telstra and accelerate an AI-enabled cloud and digital transformation agenda in the market. Telstra’s market release similarly framed the transaction as a divestment paired with a strategic partnership and JV model.

Another deal that’s worth mentioning was HCLTech acquiring HPE’s Telco Solutions business (announced 18 Dec 2025). HCLTech said that this acquisition strengthens its telecom cadence and deepens its engineering and AI-led network propositions for global communication service providers. HPE’s own blog called this part of sharpening focus on higher-growth, higher-margin areas while evolving its telco strategy.

Why AI completes the shift from capability to value?

If you are wondering how AI changes the economics of services, the answer can be told in two ways at once.

First, it removes repetitive work. AI can automate or compress tasks that used to sit at the base and middle of the services machine: coding assistance, test generation, routine L1 and L2 support, documentation, and basic analysis.

Second, it increases demand for higher-order work: governance, architecture, data readiness, integration, security, model operations, and accountability for outcomes.

This dual effect makes “value” the only defensible story. If AI compresses effort, clients will renegotiate pricing and ask for productivity benefits. Providers then have two options: defend margins by shrinking labour cost, or reinvent delivery so they can charge for outcomes, speed, and risk management.

This is also why the Coforge–Encora deal is more than a scale play. It reads as an attempt to buy a delivery model that is already tuned for AI-forward engineering and faster build cycles.

The India-specific squeeze: Layoffs, redundancy, and cautious pipelines

But the deeper story is not the deals. It is the pressure behind them. AI is reshaping workforce economics, deal cycles are slowing, and enterprises still struggle to turn GenAI pilots into outcomes. In that context, acquisitions become the quickest route to leverage: mature playbooks, specialised talent, and a delivery grid closer to where clients want results.

The first pressure is AI-driven workforce realignment. Most of the moves relate to better AI integration, hastening new market bets, and addressing a demand environment where client decisions are getting delayed. The signal is hard to miss: even the sector’s most stable employer is reshaping itself for an AI-heavy future.

The second pressure point is slower deal conversion. Through 2025, companies have repeatedly pointed to cautious discretionary spending and longer decision cycles. That caution is the soil in which value-led acquisitions grow. When organic growth softens, a targeted acquisition becomes a faster path to a sharper capability story and better proximity to client markets.

The third pressure point sits with the enterprise. Most large organisations now experiment with GenAI, but many still struggle to translate pilots into measurable business outcomes. The blockers are familiar: fragmented data, unclear process ownership, limited change management, and risk and compliance uncertainty. AI does not fail because the model is weak. AI fails because operating models are weak.

This is where acquisitions become the “value shortcut.” Buyers are not just buying revenue. They are buying teams and playbooks that already know how to operationalise AI across cloud, data, and engineering workflows.

GCCs: The strongest structural force in Indian tech delivery

And for traditional IT services companies, they need to circumvent and also cash in on the GCC boom. The rising clout of global capability centres, GCCs, is not just a talent story. It is a value ownership story.

Multiple credible sources now put India’s GCC count around 1,700-plus, and frame their evolution from cost centres to innovation and product hubs. India’s GCC count could grow to an estimated over 2,400 by 2030, with export revenue expected to rise towards $110 billion.

This matters for IT services because GCCs increasingly do three things that services firms once owned by default:

1. They own core engineering and product roadmaps.
2. They build data and AI centres of excellence inside enterprises.
3. They attract premium talent, sometimes paying materially more than services firms for AI-heavy roles, which tightens supply and raises wage expectations.

The result is not “GCCs versus services.” The result is a new division of labour. GCCs increasingly own the product and platform core. Service providers must win in the messy reality around it: integration, governance, security, cross-platform orchestration, and measurable outcomes across a hybrid stack.

This is exactly where 2025’s acquisitions point. When TCS buys Coastal Cloud, it is not buying coding capacity. It is buying a platform advisory wedge in an ecosystem that enterprises use both in-house and with partners.

Pyramid to diamond: The delivery model is changing shape

For decades, Indian IT services ran on the pyramid: a large base of entry-level talent, fewer specialists in the middle, and a relatively narrow leadership layer at the top. That model still exists, but it is increasingly under strain. As automation and AI absorb routine tasks and compress delivery effort, many large services organisations are moving towards a more “diamond-shaped” workforce, with a relatively smaller entry layer and a thicker mid-tier of experienced engineers and domain specialists who can own architecture, integration, governance, and delivery accountability.

A diamond model fits the value era for three reasons:

1. AI reduces the value of sheer volume at the base.
2. Clients want faster delivery with fewer handoffs.
3. Outcome accountability sits in the middle: architecture, data, security, programme ownership.

This does not mean the sector stops hiring fresh graduates. It means the leverage point shifts. Firms invest more in reskilling, in experienced engineering depth, and in specialised roles that can steer AI into production safely.

This is also why layoffs and acquisitions can rise together in the same year. Layoffs prune legacy cost structure. Acquisitions buy future capability. It looks contradictory until you view it through the lens of value creation speed.

So what does “value” mean in 2026, in practical terms

In a world where AI compresses effort, deal cycles slow, and GCCs take on more ownership, value has to be defined in delivery terms, not slogans. It means faster cycle time from idea to deployment, with fewer hand-offs and less rework. It means stronger governance so AI improves decision-making without increasing risk. It means better unit economics so cloud and AI do not inflate cost.

Above all, it means measurable outcomes, which require clear ownership of processes, data, and change. That is also why so many 2025 acquisitions read like capability buys with a single intent: to tighten the delivery grid and move from scale-led execution to outcome-led transformation.

What’s up on the horizon in 2026?

Integration quality, not deal size: The winners will be those who integrate acquisitions fast without losing the specialist talent they bought.

The great pricing reset: As AI productivity becomes a client expectation, they will demand AI-linked productivity benefits. Providers will need clearer value metrics and more outcome-linked contracts.

GCCs will continue to grow: As GCCs expand, providers must shift from staff augmentation to orchestration, integration, and managed outcomes.

The diamond model becomes visible in hiring and promotion patterns: The sector will rebalance toward experienced engineers and fewer layers, especially in delivery roles touched by automation.

Vertical capability becomes the safest growth lever: Telecom, engineering, regulated industries, and platform ecosystems will stay acquisition targets because they sit closer to business outcomes.

Looking back to look ahead

If the post-Y2K era rewarded scale, the AI era rewards value. That is the story inside 2025’s deals. Coforge–Encora sits at the top of the headline list, but it belongs to a broader class of acquisitions where Indian IT firms buy leverage, not labour.

At the same time, this is not just a buyer story. It is a structural story. AI is compressing work, GCCs are owning more of the core, and clients are cautious with spending unless outcomes are clear. Under these forces, the outsourcing model does not disappear, but it pivots. The pyramid gives way to a diamond. The firm that wins is the one that can turn capability into measurable and tangible value quickly, repeatedly, and consistently. Welcome to the age of perpetual transformation.

At the end of the day, if we read between the lines, all the deals have one common thread: to gain AI capabilities, and much more, through buys that gave them a stronger delivery grid. In sum, Indian IT did not buy “more of the same” in 2025. It bought concentrated capability in five high-value zones: AI-native engineering, platform ecosystems, Engineering Research and Development (ER&D), geography-led trust, and vertical telecom capability.