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How Acquisitions Are Contributing to Accenture’s Growth

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Acquisition trend

In order to boost its Industry X.0 platform, Accenture (ACN) acquired Pillar Technology and Mindtribe in the fourth quarter of fiscal 2018. The company also bought Designaffairs during the quarter. The company invested $201 million on acquisitions during the quarter as compared with around $463 million in Q4 2017. The company ended fiscal 2018 having invested nearly $658 million to acquire 13 companies as compared with 36 companies in 2017 for around $1.7 billion.

The graph above shows Accenture’s acquisition spending over the last five years. During the period, the company invested around $4.8 billion at an average of $965 million per year.

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Reasons for the numerous acquisitions

Strong free cash flow coupled with lower leverage have acted as strong catalysts for the company to sustain this acquisition trend over the years. The company’s regular investments in inorganic growth have helped boost the company’s product portfolio and also helped the company retain its market share. In fiscal 2018, the company has mainly targeted companies that deal with AI (artificial intelligence) technology. The company expects a ~1.5% inorganic contribution to its business in fiscal 2019, which is slightly lower than in fiscal 2018.

Peer comparison

In the last five years, IBM (IBM), Microsoft (MSFT), and Oracle (ORCL) have spent around $13.3 billion, $37.9 billion, and $23.3 billion, respectively, on acquisitions. Microsoft’s acquisition of LinkedIn in fiscal 2017 for $26.2 billion substantially increased the company’s acquisition spending during this time. Even Oracle is investing heavily in acquisitions to drive its cloud platform.

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