FT : Infosys Acquires Axon

Tuesday, August 26, 2008

Infosys Technologies on Monday launched the biggest overseas acquisition by an Indian information technology outsourcing company with a £407.1m ($755.5m) cash deal for UK-based consultancy Axon Group.  The deal, which was agreed by Axon’s board and supported by founding and large shareholders, follows longstanding speculation that India’s burgeoning computer services firms would use their strong cash balances to make big acquisitions in Europe…..The acquisition of Axon, a specialist in providing consulting services based on business software created by Germany’s SAP, in effect doubles Infosys’ presence in one of the fastest growing areas of computer services outsourcing.  “This is about increasing our scale and reach and ability to participate in large transformational deals,” said Kris Gopalakrishnan, chief executive of Infosys…..

Last year, Wipro, the number three outsourcing company, bought US firm Infocrossing for $600m, a specialist in data and IT infrastructure management.  Aniruddha Dange, analyst with India Infoline, said the aim was to add high-value services to create “non-linearity” – to break the traditional direct connection between labour costs and revenues.  “Margins for the industry in our view will be on a declining trend so you might as well start acquiring now and creating non-linearity,” said Mr Dange.  Infosys said it already had 2,100 consultants working in its SAP practice and the deal with Axon would give it another 2,000 consultants and access to the UK group’s customers…..However, it would also dilute Infosys’ margins.  The Indian company’s operating margin in the quarter ended June was double Axon’s operating margin of 15% last year…..Infosys reported revenue of $4.18bn in the year ended March, up 35%, and net profit of $1.16bn, up 36%.  Axon reported profit after tax of £20.2m and revenue of £204.5m for the year ended December, 2007…..Stephen Cardell, chief executive of Axon, said the takeover premium was “fairly reasonable”, even though it lagged other recent UK IT services deals.  “If you look back in Axon’s history, we are highly impacted by the cycle.  We ride high when the cycle is up and come down hard when it’s not.”…..

Reference : http://www.ft.com/cms/s/0/c58dea5c-72a0-11dd-983b-0000779fd18c.html

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