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 markets.
Epam ( EPAM ) 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 science.
Series Of Buyouts
The GGA deal was Epam's third buyout in less than three months.
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 asset management.
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 services.
Sales Surge
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 ( ACN ) andInfosys ( INFY ), 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 worldwide.
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 development capabilities.
"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.
Vertical Growth
"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 Mayank Tandon.
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 said.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.