UK-based technology services major Logica has been linked to a potential bid from Indian firms for sometime now. On Friday, the Daily Mail reported that India’s tech bellwether Infosys Technologies Ltd may be priming a bid for Logica at a whopping 2.9 billion pounds (approx $4.16 billion).
This comes amidst growing speculation that Infosys was on track to effect significant buyouts in Europe, but analysts tracking the Indian giant said they remained skeptical about the company mounting a deal as large as the one rumoured about Logica. “It looks a bit silly as Infosys has never shown an affinity for such large deals in the past, but one never knows,” said one Mumbai-based analyst who has closely tracked Infosys and the tech sector.
Infosys is sitting on a cash-pile of $3.5 billion, a part of which could be deployed for acquisitions. Analysts are sceptical whether the Indian tech giant, known to guard its cash religiously, would actually deplete all its resources to fund the Logica buy (reportedly for approx $4.16 billion or about 12% of its current market cap).
Soon after the latest quarterly numbers in April this year, analysts wrote that Infy could be headed for acquisitions in the range of $500 million, or one-tenth of its own size. In 2008, Infosys walked away from a $750- million bid for UK’s Axon Plc as domestic rival HCL Technologies made a counter bid, which it won subsequently.
An emails sent to Infosys remained unanswered at the time of posting this report. In response to a VCCircle query seeking a comment on the Daily Mail report, a Logica spokesperson said, “our policy is we never comment on speculation of this nature.”
According to a computing.co.uk report, Indian service providers such as TCS, Cognizant, Infosys Wipro, HCL and Mahindra Satyam provided services worth a combined £2.4 billion in 2009. All are expecting good growth for 2010 including forecasts from Cognizant of 20% with Infosys predicting growth of between 16% and 18%. In another trend, the report said, the public sector was a relative safe-haven for UK IT professionals last year with growth for IT suppliers ATOS and Logica as a result of government deals.
Tech writers and analysts in UK have been bullish about Logica attracting interest from Indian firms.
Analyst George O’Connor said, an unnamed Indian plc is “conscious that it needs a Trojan Horse in the UK” to win and deliver UK public sector contracts. With immigration such a key issue, offshore vendors are now a politically sensitive choice. That Logica has good relationships and valuable contacts in the newly installed UK coalition of Conservatives and Liberal Democrats was cited as another reason for a potential takeover, the Daily Mail report said.
If Logica is indeed open to a sell off – several large IT asserts such as IDC and Novell have come to the deal table in recent weeks as valuations recover – it could attract a lot of interest from several global tech giants including Indian firms like Tata Consultancy Services (TCS) as well, said a banking source who did not want to be named. Speculation about Logica’s independent future has been doing rounds for a while with the company slipping into financial trouble not so long ago, when rumours surfaced about a potential sale in parts.
But such a scenario no longer exists. Logica has rebounded and has infact reported a good start to 2010 with first quarter revenue closer to 940 million pounds beating street estimates.
Meanwhile, outside Logica, Infosys has been seriously pursuing targets in the Europe where technology spending appears to be more stable in times of turmoil. Even as the southern Europe’s troubles with mounting public debts is casting shadows over a swift global recovery, most of the region’s tech players such as Capgemini and Logica have reported improved demand.
Meanwhile, analyst reports have said, that falling European currencies may spur a fresh wave of outbound acquisitions to Europe. BNP Paribas analyst Abhiram Eleswarapu wrote: “We see 2010 as another chance for them to seek European acquisitions to gain access to a difficult market, after what we believe was a missed opportunity in 2008. We believe a risk-averse environment could keep target valuations low, while a weak GBP and EUR would make M&A more attractive for Indian companies.”
The Eurozone’s troubles could weaken currencies like Euro and GBP significantly. BNPP economists predicted that Euro could slide as far as 20% against US$ from present levels by March 2011, and GBP could lose 12% against the greenback even as rupee could be gaining 9-10% in the same period.