Wipro buys US firm for $600 mn

The deal is the largest overseas buy in the IT space

Wipro Ltd, the country's third largest software exporter, today achieved the distinction of making the largest overseas acquisition in the information technology (IT) space when it announced the acquisition of US-based, Nasdaq-listed outsourcing firm Infocrossing for approximately $600 million (around Rs 2,430 crore) in an all-cash deal.

The acquisition will be conducted through a tender for all the outstanding shares of Infocrossing, followed by a merger of Infocrossing with a Wipro subsidiary. Institutional members have a majority holding (close to 10 per cent) in the company. 
 

M&A BYTES Major acquisitions by IT companies
Date	Target Name	Acquirer Name	Total Value
08/06/2007	Infocrossing Inc	Wipro Ltd	600.00
07/06/2007	Unza Holdings  Pte Ltd *	Wipro Ltd	249.71
1/18/07	Syndesis Ltd	Subex Azure Ltd	165.40
2/26/07	Lason Inc	Hov Services Ltd	148.00
8/14/06	Mantas Inc	I-Flex Solutions Ltd	113.00
2/19/07	Esys Technologies  Pte Ltd	Tele Data  Informatics Ltd	105.00
10/31/06	Tks-Teknosoft Sa	Tata Consultancy  Services Ltd	80.37
* Unza is a consumer care company (in $ million) Source: Bloomberg

Wipro is making an open offer at $18.70 per share, which "" if fully subscribed "" will cost close to $600 million. Wipro currently has cash reserves of $750 million and expects to close this acquisition by December 2007. 
 

MIXED MARKET SIGNALS
Price pointers	03-Aug-07	06-Aug-07	% change
Infocrossing (in $)	17.73	18.15*	2.37
Wipro (in Rs)	470.25	457.85	-2.64
* At 7:39 pm India time

The $232.44 million Infocrossing, with a net income of around $10 million, and its wholly-owned subsidiaries provide IT outsourcing solutions to companies, institutions and government agencies in the US.

The company's enterprise value is around $510 million (on August 6) and its enterprise value/revenue (trailing 12 months) was 2.18 times. Founded in 1985, the New Jersey-headquartered Infocrossing went public in 1992.

Infocrossing came to Wipro's fold with assets of close to $300 million, cash reserves of $22.3 million and a debt burden of $132 million. Wipro CFO Suresh Senapati said a part of the debt would be converted "because there is a convertible option. After that, the debt will be around $55 million".

Infocrossing has about 900 people on its pay roll "" all in the US. The company also owns five data centres, located in Georgia, New Jersey, Arizona, Nebraska and California.

"The acquisition will help Wipro address the existing gap in managed hosted services in infrastructure management. This will also open existing opportunities in the total outsourcing space, which include IT infrastructure services. We expect the combined infrastructure business to touch $1 billion in 24-36 months," said Sudip Banerjee, president, enterprise solutions, Wipro Technologies.

In the year ended March 31, 2006, infrastructure management contributed about $260 million to Wipro Technologies' total revenue.

The combined value of the acquisitions made in 2005-06 was around $120 million. But contrary to the relatively smaller acquisitions (the famous "string of pearls" strategy) the company made in 2005-06, Wipro is now looking at bigger acquisitions in the current financial year. Acquisitions contributed Rs 501.1 crore to Wipro's topline of Rs 15,000.8 crore in 2006-07 against Rs 50 crore in 2005-06.

The Bangalore-headquartered company, which is sitting on cash reserves of about Rs 3,200 crore (on June 30, 2007), prefers cash acquisitions to equity "" this $600 million deal is also being funded through internal accruals.

The company has a central team, which looks at two to three deals at any given point of time, working closely with the distributed team.

Wipro Technologies has also said it is looking at acquisitions in Germany and Canada. This will help the company in expanding its footprints in those countries, apart from establishing a strong local presence.