After keeping everyone guessing for quite some time, Infosys Ltd has expressed its intent to make a strategic buyout in continental Europe. The Bangalore-based company has announced it will acquire Zurich-based Lodestone Consulting for around $345 million (Rs 1,910 crore). In an interview with Pradeesh Chandran, Infosys’ chief executive officer and managing director S D Shibulal talks about what makes this deal so special for the company. Edited excerpts:
So, finally, you got the right target. How strategic is this acquisition?
Strategic fit is the first and foremost thing in this acquisition. This fits extremely well with our strategy. The Infosys 3.0 strategy talks about being more relevant to the clients and about creating a balance portfolio. It’s about having a strategy which will help us meet our aspiration of achieving high quality growth. So, this is a perfect strategic fit for us with focus on consulting and system integration and continental Europe. We also found that both the organisations are similar, culturally. Both companies have a clear vision to build an organisation; both are focused on the clients delivering higher values to the clients.
Do you think the integration of a Swiss company will be a tougher one?
If you look at Infosys consulting, we built it over a period of three years and it has been built recruiting people, locally in whichever geography we operate. We already have strong system integration and consulting capability, and a strong local talent base. We have a strong presence in Germany and France, where we also have established front offices. There are, of course, some works that need to be done. We will start the integration after closing the deal. It will take one-to-two quarters to complete the integration.
So, what will happen to the leadership team in Lodestone?
We are hoping that the entire 850 people will remain with us. This (Infosys) is a great platform; it gives them larger responsibilities and bigger opportunities.
How do you run Loadstone post merger? What are the closing conditions for the deal?
For the time being, Loadstone will remain a separate subsidiary headed by Ronald Hafner, the current CEO. The subsidiary will have a board which will consist of B G Srinivas, V Balakrishnan, Stephen Pratt and Ronald (Hafner). Srinivas will be the chairman. Some of the closing conditions include the anti-trust clearance in Germany. Another clause is the key employee retention clause. Loadstone has four managing partners and 26 partners. Besides, one-third of the amount (total consideration for the acquisition) will be paid after three years subject to retention of key employees.
When you started the Infosys 3.0 journey, you were also talking about adding clients who will bring significant value to the company. How many of the clients that Loadstone brings on to the table belong to that category?
We have over 700 clients and many of those are in the Fortune 2000 category. If you look at Lodestone, they have 200 clients and many of them are in the Fortune 2000 space. We are sure all those clients will continue to work with us as we go forward.
Are you planning to do more acquisitions in future?
We had said that we are comfortable spending up to 10 per cent of our revenues for acquisitions. So, it doesn’t mean that it has to be only one acquisition. We may make multiple acquisitions and will continue to look at acquisitions.
In 2008, you had planned a similar acquisition in Europe which could not happen. How different in Loadstone when compared with the previous target?
There is no value in looking at the hind side that is past. Looking at the future, this company brings 750 consultants which are world class and a leading management consulting company. It is focused on continental Europe. So, it enhances our capabilities in continental Europe. We will have 10,000 people in SAP ecosystem, delivering about $1 billion in revenues. We will have strong consulting and system integration capabilities.
Will there not be a margin dilution since analysts say consulting companies focussed on onshore enjoy lesser margin?
The margins in consulting firms run in single digit. But the important thing for us to do is to create the entire pyramid. That is where the revenue and margin growth happens. Management consulting is the tip of the pyramid. The downstream work needs to be done by us and that will be purely organic. Once the entire pyramid is built, we will be able to realise the synergies in a clear manner.
Are you planning to do more acquisitions in future?
We had said that we are comfortable spending up to 10 per cent of our revenues for acquisitions. So, it doesn’t mean that it has to be only one acquisition. We may make multiple acquisitions and will continue to look at acquisitions.
