The landscape for global IT services, particularly the symbiotic relationship between US enterprises and Indian IT providers, is undergoing a seismic shift with the changes introduced to the H1-B visa program and the proposed HIRE Act. These developments are poised to fundamentally reshape how technology talent is sourced and deployed, challenging the very foundations of traditional outsourcing models, and having significant consequences on M&A deals in Tech services.

H1-B fees and HIRE Act – The double shock to the IT Delivery Model

The industry is currently grappling with twin policy threats that directly impact both on-site and offshore delivery models. The first is the new $100,000 fee for certain new H1-B visa petitions. This administrative change transforms the H1-B from an affordable mechanism for talent mobility into a profound economic barrier, effectively making the deployment of new, entry-to-mid-level foreign talent on-site in the US uneconomical for many projects.

While this sparked an immediate dip in the share prices of Indian IT majors, signaling heightened investor anxiety about operational risk, a potentially larger strategic threat looms: the proposed HIRE Act. This draft legislation aims to impose a 25% excise tax on payments made by US companies to foreign entities for outsourced services, potentially eroding the core cost-arbitrage advantage that has defined the outsourcing industry for decades. Should the HIRE Act pass, its combined impact with the new H1-B fee would pressure margins from both directions, forcing US clients and their vendors into a painful and immediate strategic re-evaluation of every outsourced contract.

Strategic Pivots: Adapting to the New Reality

While the challenges are undeniable, these policy shifts are also accelerating existing industry trends and forging new strategic pathways:

• The rise of pure Offshoring: Paradoxically, the prohibitive cost of on-site H1-B talent may bolster the pure offshore delivery model. If bringing talent to the US becomes too expensive, the incentive to deliver complex projects remotely from India (or other global hubs) intensifies. This could, for resilient Indian IT firms, lead to increased revenue for their offshore capabilities.
• Hyper-Localization: Indian IT service providers have been proactively “localizing” for years, investing heavily in establishing innovation centers and hiring local talent directly in the US. This trend will now accelerate dramatically. Firms will aim to build deeper, US-based teams capable of delivering projects entirely on-shore, reducing reliance on visa-dependent talent movement.
• Nearshoring and global diversification: Companies may increasingly look to nearshore locations (e.g., Canada, Latin America) or other established global talent pools (e.g., Europe) as alternatives to both US on-site and traditional offshore models, seeking a balance of cost-effectiveness and geographic proximity.

M&A Implications: Reshaping the Competitive Landscape

From an M&A perspective, these policy shifts are a game-changer, particularly for the India-US IT corridor:

• EBITDA and Long-Term pricing: The immediate increased costs from the H1-B fee and the uncertainty of potential HIRE Act tariffs will likely impact 2025 and early 2026 EBITDA negatively. Companies will likely initially find it difficult to pass these unexpected costs on to clients, resulting in margin compression. That said, over the longer term, the market’s cost structure must stabilize. Our expectation is that the industry will eventually have to pass on these increased operational costs to clients, leading to a recovery in EBITDA performance toward pre-tariff levels from late 2026 or 2027. This expectation forms the key differentiator between short-term market panic and long-term strategic value.
• Acquisition of On-site capability: Larger Indian IT firms with strong balance sheets are likely to accelerate their efforts to acquire smaller, US-based IT consulting firms or specialized technology companies. Such acquisitions provide immediate access to US-based talent, client relationships, and local delivery capabilities, effectively bypassing visa constraints and bolstering their “local-first” narrative.
• The diminishing attractiveness of Visa-dependent models: In the immediate term, companies whose business model is heavily reliant on the H1-B visa for cost-effective talent deployment will see a significant decline in attractiveness and valuation. Potential buyers will price in a dramatic shrinkage of the addressable on-site market and higher operational risk, although this assessment will be subject to the practical details of how the new fee rules are actually implemented.
• Market consolidation: The environment will favor larger, more diversified players (like Tata Consultancy Services, Infosys, Wipro) that have the financial muscle to invest in localization, navigate higher costs, and adapt their business models. Smaller firms or pure-play outsourcing specialists might find themselves under significant pressure, leading to further industry consolidation.

The changes we are witnessing are more than just a regulatory adjustment; it’s a structural realignment of the global IT industry. The H1-B fee hike and the potential HIRE Act are forcing a fundamental rethinking of delivery models, talent strategies, and geographic footprints.
While the whole industry is still waiting for the dust to settle, it will undoubtedly have significant impact to the industry players, whereby the more resilient, high-value players will benefit from increased valuations, while business which failed to adapt will be swallowed by bigger players.

Maelex Technology is the leader in M&A Advisory for the Technology industry. Discover how Maelex can help you with your M&A project: https://maelextechnology.com/our-expertise/