Cyient Propels its Aftermarket Services with Pratt & Whitney Captive Acquisition

Cyient’s recent acquisition of Pratt & Whitney Global Engineering Services Asia is a good strategic move and validates our recent Engineering Services Blueprint predictions of engineering services mergers and acquisitions, particularly our call on potential acquisitions of captives by engineering service providers.

Pratt & Whitney, a subsidiary of United Technologies, is a leading aero-engine manufacturer that had $14.5 billion revenue in 2014. It manufactures engines for both commercial and military aircrafts. Global Services Engineering Asia is Singapore-based captive operation of Pratt & Whitney, which provides repairs, development and validation services for aero-engine components in Asia-Pacific. The financial details of the deal were not disclosed.

Acquisitions have been the cornerstone of Cyient’s growth strategy. The firm has acquired 13 service providers in the last 20 years and augmented its capabilities, infrastructure, client relationships and technical resources across different verticals and geographies. In its quarterly results presentation on July 16, Cyient outlined its acquisition strategy and presented its acquisitions funnel, which had 33 targets in different stages.

Weighing this acquisition against Cyient’s strategy, Pratt & Whitney’s captive is a good fit because it:

1. Strengthens Cyient’s leadership in the aerospace vertical by augmenting its aftermarket services capabilities
2. Deepens Cyient’s already 15-year strong relationship with one of its top clients
3. Increases the possibility of new aerospace client acquisitions, with aftermarket services as an entry point
4. Enables Cyient to expand its business in Asia, where it lags behind some of its peers
5. Provides access to the skilled resources that are hard to find in niche areas like aerospace aftermarket services

The acquisition of engineering services captives can be highly beneficial to service providers. But they need to earn the trust of customers like Cyient has done over its 15-year relationship with Pratt & Whitney.

This benefits Pratt & Whitney as well. We recommended in our Engineering Services Blueprint that enterprises revisit their “captive vs. service provider” value proposition and engage service providers’ capabilities for better operating leverage, business outcomes and flexibility to ramping up and down based on business requirements. Pratt & Whitney can get all of these potential benefits.

The bottom line is that the acquisitions of both captives and service providers will be a major pillar of the growth strategy of engineering service providers. Cyient has made its intention public with discussing acquisition pipeline. Other service providers are not that open. In private conversations with HfS, we learned that many service providers are looking for acquisitions. We believe service providers will grow more than captives, and ultimately service provider outsourcing will overtake the captive outsourcing market.