Mumbai, Sept. 10: Infosys, the $7-billion Bangalore-based infotech giant, today announced its biggest-ever acquisition: the buyout of Zurich-based Lodestone Holding AG in an all-cash deal that put the aggregate enterprise value at CHF 300 million (roughly Rs 1,932 crore).
The deal, which is likely to be completed by the end of October, will turn Infosys’ consulting practice into a $1-billion powerhouse. The deal comes a little over a year after high-profile banker K.V. Kamath took over as non-executive chairman of the information technology firm.
Lodestone is a SAP consultancy firm with about 200 clients straddling business segments such as manufacturing, automotive and life sciences. It advises international companies on strategy and process optimisation, and provides business transformation solutions enabled by SAP.
The buyout is expected to quell mounting criticism that the Infosys management did not appear to have any strategy to utilise its $3.24-billion cash hoard.
The company had disappointed shareholders and markets after it reported less than satisfactory first-quarter performance and scaled down dollar revenue guidance for the full year, sparking a 12 per cent slide in the stock since April 1. To make matters worse, Cognizant had pushed Infosys off its perch to become the second-largest IT services firm in India.
A buyout was, therefore, the only way to ratchet up revenues and consolidate future earnings. This is the fifth acquisition that Infosys has made; its previous buyout deal was in 2011.
Infosys said the acquisition of Lodestone would strengthen its consulting and systems integration (C&SI) capabilities, by bringing more than 850 employees, including 750 experienced SAP consultants into the company.
The Bangalore-based company has been focussing on growing its consulting business that provides high margins.
Besides adding to Infosys’ client base of 700, Lodestone will turn the Bangalore-based company into a global leader in SAP consulting.
Infosys’s C&SI business today has more than 30,000 consultants across 10 industry verticals and accounts for 31 per cent of the company’s revenues.
Geographically, the acquisition is expected to enhance its global presence in continental Europe and emerging markets such as Latin America and Asia Pacific.
“A key plank of our Infosys 3.0 strategy is to expand our consulting & systems integration business. This acquisition fits perfectly into that strategy,” said S.D. Shibulal, CEO & managing director.
The deal will also benefit Lodestone’s clients as they will get ready access to Infosys’s scale and global reach in addition to a broad spectrum of capabilities across consulting, systems integration and outsourcing.
This is not the first time that Infosys is chasing a SAP consulting firm. In 2008, it had bid for UK’s Axon Group Plc for £407 million. However, HCL Technologies walked away with the company by coming up with a higher offer of £441 million. Infosys chose not to raise its bid.
The buyout deal received a thumbs-up from IT analysts. Though they pointed out that the acquisition will not have any significant impact on Infosys’ financials as the revenues of Lodestone is far less than that of Infosys, it could provide various benefits over a period of time.
“While the immediate financial impact is likely to be limited, we believe the deal is structurally positive for Infosys,” Rikesh Parikh, vice-president, markets strategy and equities, at Motilal Oswal Securities.
On the other hand, Shashi Bhusan, a senior research analyst at Prabhudas Lilladher, said the deal would provide that inorganic boost to Infosys’ revenues.
“The acquisition is at about 1.3 times 2012 revenues (according to the management). Margins for on-site consulting companies are normally below 10 per cent. To that extent, the acquisition will likely become accretive in a few quarters,” said Dipen Shah, head of fundamental research at Kotak Securities.
However, the stock markets were slow to react to the surprise announcement. The stock rose marginally by Rs 15.10 to close at Rs 2,511 on the BSE.