After losing out UK?s Axon Group deal to HCL Technologies, which went on to buy Axon for $658 million last year, Infosys Technologies, India?s second biggest exporter of IT services, is still scouting for a technology firm, including one that specialises in the development of intellectual property (IP). However, it hasn?t had much luck so far and is still sitting on cash reserves of close to $3 billion.
V Balakrishnan, chief financial officer at Infosys said the idea is to build a sustainable model over the mid to long term and points out that focusing on non-linear services would fetch it higher profit margins. ?We want to develop the non-linear services portfolio and so we will explore the inorganic route,? he said. That would suit the firm?s strategy of increasing the contribution of non-linear services from a mere 5% to 33% of revenues in the next five years. The firm also wants to enhance its focus on the consulting and trans- formational projects.
While Balakrishan is reluctant to divulge what the size of an acquisition could be, analysts suspect that the company could be willing to investment anywhere between $400-500 million. Analysts feel Infosys might want to buy captive units much like Tata Consultancy Services did with Citigroup Global Services (CGSL) for $ 505 million in October 2008. That way, the company would be assured of large revenues from a single client. Industry watchers also feel that it?s probably a good thing that Infosys hasn?t rushed into an acquisition given the downturn in the global economy. HCL Technologies, they point out, hasn?t been able to do much with the Axon buyout since the enterprise resource planning (ERP) market has seen poor demand.
Balakrishnan said Infosys had pursued a similar strategy for BPO business and said it should work for acquiring an IP franchise too. Operating profit margins from this business are higher than those for the application development and maintenance stream and could range between 25-30 %. Balakrishnan said Infosys is also looking to streamline its businesses under three umbrellas. The first would be non-linear services, the second area consulting and trans- formational projects while the last segment would include application development and maintenance and BPO.