Like a lot of companies, Epam Systems knows that the quickest
way to enter new markets is to buy your way in.
To that end, the provider of software and
information-technology services has made a series of acquisitions
in recent weeks that have moved it into new geographies and end
) provides outsourced software engineering and other IT services
to clients in North America, Europe and the Russia-dominated
Commonwealth of Independent States.
Much of its workforce is based in Central and Eastern Europe
and provides an alternative to offshore IT firms that do most of
their work in India or China.
Epam serves a variety of industries, including banking and
financial services, media, retail and business information. It
has used an aggressive acquisition strategy this year to expand
into new areas and diversify its product lineup.
The company's latest deal came on June 6, when it acquired GGA
Software Services, a Cambridge, Mass.-based provider of
scientific informatics services to companies in global
pharmaceuticals, scientific instrumentation, medical devices,
scientific publishing and software, and early-stage life
Series Of Buyouts
The GGA deal was Epam's third buyout in less than three
In April, Epam acquired Joint Technology Development, or
Jointech, a China-based provider of technology services to
multinational organizations in investment banking and wealth and
About a month earlier, Epam bought Netsoft USA, a New
York-based strategic technology and design firm that specializes
in health care and health insurance.
Terms were not disclosed on any of the deals. They were Epam's
first buyouts since 2012, when it acquired a pair of companies:
Thoughtcorp, a Toronto-based consulting and software services
firm; and Empathy Lab, a provider of digital marketing
Epam's acquisition strategy has helped the company more than
double its annual revenue over the past three years.
It also has helped Epam expand its expertise to better compete
against much larger rivals such asAccenture (
) andInfosys (
), observers say.
In the case of GGA, Epam gets a company that bolsters its
expertise in life science and health care.
"GGA has created a niche for itself in the domain of
scientific informatics by combining its in-depth industry
knowledge (with) strong analytical and software development
skills," Zacks Equity Research noted in a recent report.
In addition, GGA provides IT support, quality assurance and
other services to leading health care and life sciences clients
Epam officials did not respond to requests for comment. In a
statement, CEO Arkadiy Dobkin said that his company sees
"tremendous potential" in combining Epam's strengths with GGA's
algorithm-development, mathematical-modeling and content-database
"The capability to develop and operationalize platforms --
combining tools, models and data -- has broad applications across
other strategic industries on which Epam focuses, including
financial services, business information and media, and retail
and consumer services," Dobkin said.
Epam's two earlier buyouts provided similar benefits, says
Citigroup analyst Ashwin Shirvaikar.
"Epam continues to invest in building new 'spearhead' areas,"
he noted in a first-quarter earnings report on Epam. "The Netsoft
acquisition for health-care payers is an example, and the
Jointech acquisition gives both geographical diversification
(Southeast Asia) and functional expertise."
Epam delivered first-quarter earnings of 47 cents a share.
That was up 34% from the prior year, its biggest quarterly EPS
gain in more than two years and above consensus views for 41
cents. Epam has now logged accelerated earnings growth three
quarters in a row.
Revenue for the quarter gained 29% to $160.4 million,
continuing a years-long run of 26%-or-better growth on the top
line. Results topped consensus estimates for $153 million.
"Banking and financials, the largest vertical, remained
strong, although the first quarter saw the highest sequential
vertical growth from the travel/consumer and business
information/media segments," noted Needham & Co. analyst
Epam delivered the strong Q1 results despite the military and
political conflicts that erupted in Ukraine, where the company
operates several offices and delivery centers.
"Management commentary around the situation has remained
consistent that they are cautious but have not experienced any
material impact related to delivery or client demand," Tandon
Epam shares rose 5% to 32.80 on the day that it reported Q1
results. The stock has continued to push higher since then and
currently trades near 44.
Analysts polled by Thomson Reuters expect Epam to report
full-year earnings of $1.98 a share, up 19% from the previous
year. Earnings are seen rising 16% to $2.30 a share in 2015.