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Accenture to Boost Security Business with Redcore Takeover

Zacks Equity Research
Updated

Global IT services provider Accenture Plc ACN recently inked an agreement to acquire Australian consulting company Redcore. Financial details of the transaction were kept under wraps.

Founded in 2010, Redcore is a privately held company specializing in cloud consulting and cybersecurity services, especially identity and access management services (IAM). Through approximately 130 security professionals, the company operates multiple offices across Australia, India, New Zealand, the Philippines and Singapore.

According to Accenture, Redcore has witnessed increasing demand for its IT management and security services among major banks and government agencies in Australia, for which it has “deployed multiple large-scale cybersecurity solutions, including multi-factor authentication and secure application gateways”.

The latest deal is expected to expand Accenture’s existing IAM services and security-as-a-Service capabilities as well as to strengthen its leadership position in the Asia-Pacific region. The company intends to integrate Redcore with the Accenture Security business.

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Given the growing need for strategy consulting, we expect Accenture’s investments in consulting capabilities to boost long-term growth. These investments should also enable the company to effectively compete with other consulting service providers, such as International Business Machines Corp. IBM, Dell and Deloitte.

Accenture pursues strategic acquisitions to diversify its offerings and expand operating markets. So far this year, the company has completed eight acquisitions. Last year, it had closed 21 takeovers.

A strong cash balance of $3.50 billion and an operating cash flow of $2.52 billion at the end of third-quarter fiscal 2016 will support Accenture’s inorganic growth strategy.

These acquisitions have enabled Accenture to foray into newer markets, diversify and broaden the product portfolio, and maintain its leading position. Going ahead, we expect prudent acquisitions to contribute significantly to the company’s revenue stream.

However, we are slightly cautious about intensifying competition in the space and an uncertain IT spending environment, which may hurt the company’s near-term performance.

Currently, Accenture carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the Consulting industry include CBIZ, Inc. CBZ and Navigant Consulting Inc. NCI, both carrying a Zacks Rank #2 (Buy).

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