Background
This week, Coforge announced the acquisition of Encora, a Silicon Valley-based technology services firm. This is a significant deal for Coforge, and for the industry. It represents the shift underway in the market from commoditized IT outsourcing towards engineering-led operating model transformation.
The transaction is an all-stock deal, with Coforge acquiring 100% of the shares of Encora. The combined entity will generate ~$2.5B of revenue, elevating Coforge towards the top of ISG’s Breakthrough 15 leaderboard for managed services.
Encora is the capstone among a series of recent Coforge’s acquisitions. Of the 10 deals Coforge has done since 2015, the largest was Cigniti, which at the time had an enterprise value of approximately $250 million.
Why It’s Happening
While Coforge has seen strong growth and profitability over past several years, it faces the same challenges that just about every other firm in the sector faces: the increasing commoditization of traditional IT services, pricing pressure due to new market entrants, and competition for talent from global capability centers.
Coforge, along with every other firm in the sector, sees the immense opportunity ahead with AI. The new mandate is to help firms build the next generation of infrastructure to support AI workloads, to modernize their data so AI agents will actually work, and to build out the next generation of AI workloads that will run on top of the modernized data and infrastructure.
To do this, providers are going to need a new operating model. They need to now focus on building their own IP, co-create IP for clients, and do it with experts that have deep technical and domain expertise.
Why It Works
Encora appears to hit most of the key areas where we see strong growth in the market today – as compared to what’s happening in traditional outsourcing services, which is largely flat year-to-date:
Engineering services annual contract value (ACV) is up 36% YTD and software engineering, Encora’s strength, is almost 50 percent of that ACV.
Cloud ACV is up 33% YTD, and we see this accelerating in 2026 as firms turn to the hyperscalers to run their data and AI workloads.
Data and Analytics ACV is up 24% YTD as firms increasingly realize that a strong data foundation is the key to unlocking value with AI.
Beyond just the fact that Encora is strong in the areas that are seeing strong growth today, there are other reasons this acquisition makes a lot of sense.
Americas tech and sourcing leaders consistently indicate that time zones are one of the biggest risk factors in their global delivery decisions. We see this on the ground with clients also looking for talent at a price point that scales outside of India. For Americas clients, that almost always means the LATAM region. And this is where Encora is strong, they have over 3,000 delivery resources in the region.
Another strategic rationale here aligning with emerging buyer expectations is around skills mix. Back in late 2023, we flagged the increasing gap between capacity and expertise – where enterprises were increasingly looking for expertise from their service providers, but were still primarily getting capacity. This worked pre-AI, but today, providers need to deliver the expertise enterprises need to move their AI plans forward.
And this expertise is increasingly going to be senior level, engineering heavy, be full stack savvy, and able to work between tech and the business. These people are not easy to find or retain. Encora’s onshore and nearshore mix appears to favor this model, which should bode well for enterprises looking to move towards a “co-creation” model for AI workloads.
Finally, the shift towards platform-led delivery cannot be understated enough. The industry by headcount is smaller than it was two years ago. Providers can’t win simply through just scale anymore. It’s too slow and too expensive. Encora’s AI platform, AIVA, is a differentiator for a firm of their size. This will likely help Coforge, and their clients, see value faster and at a price point that can scale.
What’s Next
Coforge has a strong track record successfully integrating acquisitions via the lens of margins through efficiencies and revenues through cross and up-selling acquired clients. This acquisition is an order of magnitude larger than anything they’ve done to date, but we don’t see any reason that the track record won’t hold.
Encora clients should see benefits in the verticals where Coforge is deep (e.g., financial services, insurance and travel) as well as cost leverage for more commodity areas. Coforge clients should see the benefit in more onshore/nearshore support for their cloud, data and AI workload buildouts.
For the industry, the acquisition underscores that AI workloads are scaling and that demand is shifting toward engineering depth and accessible onshore/nearshore talent.
About the author
Stanton Jones
Stanton helps enterprise technology leaders, IT service providers and buy- and sell-side professionals make sense of the global IT services sector. Stanton's weekly briefing - the Index Insider - is read by thousands of industry stakeholders each week.
