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Indian outsourcer Infosys Technologies said Monday that it has agreed to terms for a recommended cash offer for Axon Group, a vendor in the U.K. of consultancy and services around software from SAP. The deal is valued at GBP 407.1 million USD 754.5 million, and Infosys is offering to acquire Axons shares at a premium of 33.1 percent over the six month average price of the shares, it said.
Though India has been a hotbed for low cost services in recent years, benefiting Infosys and many other Indian tech companies, the intense demand for the countrys services gave employees strong bargaining power and drove up wages. Now, previously overlooked areas in eastern Europe or even Vietnam are looking more attractive to companies looking to contract services out to third parties.
Building its consulting base will help Infosys compete for richer, higher margin business contracts and will help stem slowing growth at the company. Providing consulting services and strategic management can even help the company perform well in a slower economic environment as firms seek help enhancing efficiency amid a slump in activity.
The market for SAP services is growing very fast, Infosys CEO Kris Gopalakrishnan told reporters in Bangalore.
The acquisition of Axon, which is expected to be completed by November, will create a large SAP services organization, with the ability to deliver services from multiple locations, and with a global reach, Gopalakrishnan said.
This will be a large acquisition for Infosys, and in the right market, said industry analyst Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International TPI. Infosys has expertise in SAP technology and software development, while Axon has complementary expertise in the deployment of these technologies to meet business needs in a variety of industry verticals, he added.
Infosys will also have access to some large clients of Axon like Xerox to which it plans to cross-sell its other services, said V. Balakrishnan, chief financial officer of Infosys.
Infosys already has an SAP services practice with more than 2,100 staff and 100 clients, and this business had a compound annual growth rate of 65.5 percent over the last three years, Balakrishnan said.
Axon had revenue of GBP 204.5 million and profits of GBP 20 million last year. It has 2,000 employees and operations in 30 countries, including a services delivery center in Malaysia. The company gets 55 percent of its revenue from the U.K., while North America accounts for 34 percent of revenue.
Indian outsourcing companies will have to become global by offering delivery capabilities in the markets in which they operate, TPIs Pai said. The proposed acquisition of Axon is a step in this direction by Infosys, he added.
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