Column Infy goes shopping

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: Infosys Technologies’ announcement to acquire the UK-based Axon Group has once again reinforced India Inc’s appetite for inorganic growth. It would put some vigour to the Indian IT industry, which is witnessing a slowdown because of reduction in IT budgets of various US companies. The slowdown is making it difficult for Indian IT companies to get more business as many of their clients are facing huge losses and write-downs

Given that Infosys made its last acquisition five years ago, such an announcement came as a surprise because Infosys doesn’t have a long track record of making acquisitions abroad, as other technology companies in India have done. Though the valuation of $753 million may appear to be on the higher side, the synergies that can be derived from the acquisition are potentially significant. It will enhance the company’s capabilities in the SAP domain, increase its share of European business and provide notable client that include British Telecom, BP, Xerox, among others. The acquisition would also significantly boost Infosys’ topline.

The Infosys-Axon deal also sets the trend of Indian IT companies moving up from the low-hanging maintenance kind of services to high-end domain services that could add more to the bottom line of the companies.

Axon Group, which recorded 68% increase in profits from 2003 to 2007, specialises in providing consulting for customers of business-software maker SAP. Its software helps large corporations keep track of their processes. Axon enjoys 15% market share in the SAP implementation market in the UK and the company’s top 10 clients contribute around 64% of the revenue. The transfer of ownership to Infosys is expected to be completed by November this year, subject to the Scheme of Arrangement becoming effective.

The acquisition comes at a time when, for the Indian IT industry, the European market still remains under-penetrated. Moreover, unlike the US, the European companies have been slower to outsource and offshore due to various reasons like labour laws, culture and language differences. However, given the pressures on the bottom line, they can now be expected to increase their focus on outsourcing, which would open up new opportunities for Indian IT companies and offset the slowdown of US outsourcing to India to some extent.