Infosys Technologies, India’s second largest IT exporter, is planning to acquire ‘strategic assets’ overseas. However, it does not intend to go in for big bang acquisitions like Axon — the bid for which fell through owing to a competing bid by another Indian IT outsourcing services provider HCL Technologies.
The Bangalore-headquartered company is believed to be evaluating two-three companies which are in the revenue bracket of $100-$200 million to eliminate some gaps that exist in its services offerings and increase focus on certain verticals which have been least affected in the midst of the economic slowdown. It is reliably learnt that the company is looking at healthcare and energy, and utilities as the two major areas for possible acquisitions.
So far, Infosys has made two successful acquisitions including the acquisition of Australian firm Expert Information Technologies for close to $23 million in 2003, and Philips’ global BPO operations in 2007. At the end of the third quarter this fiscal, Infosys had a cash reserve of about Rs 8,463 crore.
“Whether there is a slowdown or not, it does not matter to us for our inorganic pursuits. We are evaluating strategic assets to fill in some gaps in our service offerings; to expand our presence in certain geographies and to increase our focus on certain verticals where the company has limited presence now. However, we would like to have smaller acquisitions instead of larger ones,” V Balakrishnan, CFO of Infosys Technologies told Business Standard.
For companies like Infosys, said S (Kris) Gopalakrishnan, CEO and MD, Infosys Technologies, “There are several sectors where the company has a small presence - such as the public sector, energy, utility among others which are opportunities for us. In addition, we are looking at services such as consulting, infrastructure management and BPO which still contribute a small 7-8 per cent of our overall revenue and have potential for more opportunities.”
It is reliably learnt that Infosys is evaluating a few opportunities in France, Germany and Japan as the company is finding it difficulty to organically grow in these markets. Last year, Infosys had been unsuccessful in its $753.1 million (Rs 3,300 crore) bid for UK-based SAP consulting firm Axon as the company decided to back out from the deal when HCL Technologies made a competing bid bettering Infosys’ 600 pence per share offer. Infosys however is not much interested now to acquire SAP companies as the it feels that the SAP ‘market is challenging’.
Industry sources say that SAP space is seeing a slow-down for the last couple of quarters as most of the transformation projects are on the block, and the number of new SAP roll-outs have come down quite significantly. “I don’t think that paying a premium for acquiring SAP companies now will give immediate cash to the acquiring company,” said a senior industry insider on anonymity.
More From This Section
Industry analysts however feel it is highly unlikely for any Indian companies to go in for acquisition in the next couple of quarters as this may not bring them immediate traction to reap the benefits. “Many Indian IT firms are looking at targets quite actively, but are not committing anything. This is happening for two things — there is a strong focus to preserve cash in this uncertain environment, and there is an expectation in the market that if they wait for another 2-3 quarters, the pricing of the targets they are looking for could be a lot more attractive,” said Sabyasachi Satpathy, co-founder of Mindplex Consulting.
One of the strategies earlier adopted by Infosys was to expand globally by opening new centres onsite and closer t the clients’ locations. In the last one year, the company has strengthened its front-end capabilities in countries including US, UK, Japan, Canada, Mexico, Philippines and China.
According to Balakrishnan, Infosys is now looking at establishing a strong front-end presence in France, Germany and Japan, which makes lot more sense for the company to go in for acquisitions in these geographies. As the US market which is under the direct impact of global recession is getting saturated, many Indian IT firms are expanding their foothold in Europe.
However unlike the UK and Ireland, the other European markets including France and Germany are very difficult to penetrate without having strong local presence. The work culture and languages in these countries are quite different from UK. UK and Ireland contribute about 50 per cent of the Indian IT companies’ European revenue at present.
Japan had been traditionally a very difficult market for Indian companies to crack in since the Japanese companies are more inclined to outsource works to culturally-alligned countries like China, Korea and Taiwan.
It is believed that most of the Indian IT services players including Infosys are eyeing the IT division of major Japanese auto and electronic manufacturers who are in the process of hiving off the IT units to focus on their core areas. This expected to create huge opportunities for Indian IT services firms who can possible acquire these businesses in return of business commitment for their previous owners.
(With inputs from Prem Mishra in Chennai)