New Delhi-based HCL Technologies has offered an 8.3 per cent higher bid at 650 pence a share in cash to acquire UK-based SAP consulting player, Axon Group for around Rs 3,790 crore. India's second largest IT firm, Infosys Technologies had earlier offered Axon shareholders 600 pence a share. The deal was valued at $753.1 million (around Rs 3,400 crore).
Regardless of which IT firm clinches the final deal, it would make it (when completed) the largest overseas acquisition by an Indian IT company, surpassing Wipro's buyout of US-based Infocrossing last year for $600 million.
Infosys, in a press statement, said: "It is considering its position and urges Axon shareholders to take no action at this time." But Axon shares on the London Stock Exchange rose sharply as the news trickled. The shares of Axon Consulting closed at 682 pence, up 7.5 per cent at the end of the trading session.
The deal is important for both IT firms. If HCL Tech is successful in acquiring Axon, it will catapult the company to the 12th position in terms of SAP implementation globally. If Infosys counters the bid successfully, it will emerge as the 10th largest SAP player, says Nishant Verma, VP, Tholons Capital.
The HCL management insists this is "not a counter bid since it was in talks with the UK-based company since July." "We think Axon will be a good fit for HCL Tech. It is not a counter bid. We proactively got the deal. When it comes to SAP, Axon is the only pure play large global firm in the world. We had shortlisted another US firms with revenues below $100 million but Axon is a better match," said Vineet Nayar, CEO and member of the Board, HCL Technologies.
He added that the Axon Board has signed an inducement contract, and reasoned that after the Tata-Corus deal, any offer in the UK that benefitted shareholders is no longer termed a "counter" bid.
Axon employs 2,000 employees, a top-line of Rs 1,660 crore and net profit of around Rs 160 crore. The company has a cash reserve of about Rs 205 crore and services over 200 clients including the large ones such as BP, Xerox and PSL Energy. The company derives close to 55 per cent of its revenues from Europe and about 40 per cent from the US, where it had made an acquisition in the past. The company also has a delivery centre in Malaysia consisting of 700 people.
Consulting firms are generally valued at thrice their revenues, but the valuations have come down to twice the revenue levels as the markets are down. HCL Tech says it will take a loan of around Rs 3,400 crore and the rest in cash. It has around Rs 2,500 crore cash in hand.
The bidding was done through HCL EAS -- a private limited company incorporated in England and Wales and a wholly-owned subsidiary.
Commenting on the strategic fit between HCL and Axon, Ram Krishna, Corporate Vice President - Enterprise Application Services, said the merger of Axon’s strong implementation capabilities with HCL’s strong application and infrastructure management capabilities will help the company deliver unique value on an end-to-end basis for the customers of HCL and Axon.
HCL has identified eight focus areas for growth including enterprise application services. For inorganic growth in these areas, HCL follows a "thorough and diligent selection process of proactively identifying acquisition opportunities, and evaluating them rigorously against our long-term strategic growth objectives to create incremental shareholder value.”
Though the decision to acquire the UK-based SAP consulting company, Axon Group, comes at a time when clients based abroad are asking for a lot of value-added services, it also comes at a time when competition in the IT services space is getting tougher, with companies like IBM, Accenture and HP gaining market share because of their sheer size and large number of offerings.
Finally, faced with a US slowdown and subprime crisis which affected the BFSI segment — both major revenue earners for IT companies — most Indian IT service providers have been increasingly focusing on Europe for business.
