Accenture to return less to shareholders as acquisition spending rises

Accenture Plc expects to return less money to shareholders through dividends and share buybacks in the current fiscal year than it did in the previous year, marking the second year-over-year decline in shareholder returns for the world's largest IT and consulting firm since it went public in 2001.

According to company management, Accenture is expected to return at least $9.5 billion to shareholders in the current fiscal year to August 2027, below the $11.5 billion returned in the previous fiscal year. Of the latter, $4 billion consisted of dividends, while the remaining $7.5 billion came from share repurchases. The lower shareholder payout comes even as Dublin-headquartered Accenture has outlined a higher acquisition budget for the current fiscal year.

Accenture's capital-allocation decisions matter to Indian IT services firms, which tend to track the company's strategy. Local IT services firms also returned less to shareholders last fiscal. Tata Consultancy Services Ltd and HCL Technologies returned $4.1 billion and $1.5 billion to shareholders, respectively, last year, down 12% and 10%.

"Accenture is taking on debt to probably fund its acquisitions and also returning capital to shareholders via dividends / buybacks. What we see currently is that Accenture is going all in to make itself future-ready through platform and capability-based acquisitions rather than spending excess money on shareholders," said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities.

For Mumbai-based TCS, this marked the second consecutive year of declining shareholder returns, while for Noida-based HCLTech, it was the first such decline in five years.

For Accenture, the lower cash earmarked for shareholders comes after it ended the previous fiscal year with $74.2 billion in revenue, an increase of 6% from a year earlier.

Still, even as the company is expected to return less to shareholders this year, its acquisition spree is set to continue.

Management expects to spend $8 billion on acquisitions in the fiscal year, its highest since the company went public in 2001. Of this, $3 billion is expected to be spent on acquisitions of cybersecurity firms that were deferred to this fiscal year.

Excluding that spending, its remaining acquisition budget of $5 billion is the highest in three years. The last time the company spent more than this was in FY24, when its $6.6 billion acquisition bill was its largest since listing in 2001.

Accenture has clearly prioritized IP acquisitions which are significantly more expensive than their talent-based acquisitions. In addition, they are looking for an acquisitions lead approach to move into attractive and adjacent areas. This reflects their conviction that the industry is going to integrate IP into services in a deeper and more extensive manner," said Peter Bendor-Samuel, founder of Everest Group.

For now, management has attributed the acquisition budget to long-term growth opportunities.

"As part of our growth strategy, when we see significant opportunities in the market through acquisitions to either grow in really high-growth areas like data and AI, and to expand into new areas like we've done with data centers, we've done with data and OT security, we go after them because that's how you position for long-term growth," said Julie Sweet, chief executive of Accenture, during the company's post-earnings analyst call on Thursday.

"Our capital allocation approach remains unchanged," an Accenture spokesperson said in response to Mint's questions dated 2 October.

Accenture announced on 23 June that it was raising its FY26 share repurchase programme by $2 billion, thereby increasing its total payout to shareholders for the previous fiscal year.

However, the acquisition spree is also being accompanied by a sharp increase in debt. The company's long-term debt almost doubled year-on-year to $10 billion in the previous fiscal year. This is not a one-off: its long-term debt has risen nearly 127-fold from $78.6 million two years ago.

The company reported an operating margin of 15.4%, up 70 basis points from a year earlier. It expects the margin to increase by 10-30 basis points on an adjusted basis this year. One basis point is a hundredth of a percentage point.

A second analyst said Indian IT services firms could face a new form of challenge as a result of Accenture's rethink of capital allocation.

"Indian IT firms have traditionally been disciplined with their balance sheets and generous with dividends and buybacks, but the next few years will test whether that model needs to change," said Phil Fersht, chief executive of HFS Research.

He added that shying away from acquisitions may bring an additional risk to technology services firms.

"Accenture's capital allocation is a strong signal that standing still and protecting cash may ultimately carry a greater competitive risk than investing aggressively in the capabilities clients will pay for next," Fersht added.

Management is also upbeat about revenue, expecting 3-6% growth in local currency in the current fiscal year, compared with the 5% growth reported last year. Accenture shares closed 15.8% higher on Thursday after the company announced its full-year results.