A failed attempt to acquire Axon has not deterred Infosys to pursue acquisition in the consulting space. The IT major has announced that it is looking to acquire companies in the consulting, transformation capabilities and the ERP space.
Both Infosys and HCL made no secret of their ambition to break into software consulting, a high-margin business that differentiates the likes of IBM and Accenture from the Indian software services exporters. While HCL managed to get Axon, Infosys stuck to its fiscal conservatism and is still vying for the top league. Infosys has built scale in Oracle, while SAP comes No. 2 in its ERP portfolio and is still in the investment mode.
The IT major has been trying to get into consulting for quite some time now – business which usually attract at least 30%-40% higher billing rates than bread-and-butter back office application maintenance and support jobs where margins can be relatively high but the competition also tends to be intense.
Also the meltdown in the US is forcing Indian outsourcing companies to reinvent themselves if they want to survive. There is a strong pressure on costs with increasing wage inflation amid a shortage of skilled labour, and international competition has increased in the low end of the business or the back office application maintenance and support jobs from countries such as Vietnam, Ukraine, and the Philippines.
Since Infosys is 62% North America, it would be looking at acquisitions in other geographies. Infosys CEO, S Gopalakrishnan said that Infosys is keen on geography based acquisitions in Germany, France and Japan, in conjunction with their third quarter earnings.
As on December 31, 2008, Infosys had $1.9 billion in cash and cash equivalents including cash and bank deposits, and deposits with corporations. The software services firm has also recorded a net gain of Rs 18 crore from its failed attempt to acquire British consultancy Axon Group Plc. Though Infosys had spent a total of Rs 15 crore on the failed deal, it has received Rs 33 crore from the UK firm as inducement fee. Infosys was in the lead to acquire Axon and had made a cash offer of 407.1 million pound for the same. However, it was outbid by HCL.
In 2007, Infosys had acquired Philips Global’s finance and accounts BPO for an assured revenue of $200 million spread over five years. It had acquired Australian IT major, Expert Information Services Pty Limited for $29.9 million, in 2003. In the previous year, Infosys had bought the trade IQ product division of IQ Financial Systems Inc, a Deutsche Bank-owned company for $3.9 million.