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Infosys buys UK’s Axon for Ј407m

Infosys Technologies on Monday launched the biggest overseas acquisition by an Indian information technology outsourcing company with a £407.1m ($755.5m) cash deal for UK-based consultancy Axon Group.

The deal, which was agreed by Axon’s board and supported by founding and large shareholders, follows longstanding speculation that India’s burgeoning computer services firms would use their strong cash balances to make big acquisitions in Europe.

The acquisition values Axon at £6 per share, representing a 19.4 per cent premium over the company’s Friday close on the London Stock Exchange of £5.025 per share and a 33.1 per cent premium over its six-month average, but well below last September’s 12-month high of 928.5p. Shares in Axon on Tuesday jumped 100p or nearly 20 per cent to 602½p.

The acquisition of Axon, a specialist in providing consulting services based on business software created by Germany’s SAP, in effect doubles Infosys’ presence in one of the fastest growing areas of computer services outsourcing.

“This is about increasing our scale and reach and ability to participate in large transformational deals,” said Kris Gopalakrishnan, chief executive of Infosys.

Indian outsourcing companies have been seeking to move up the value chain from their origins as “body shops”, or providers of low-cost services based on cheap labour.

As they have grown, they have also begun attempting larger acquisitions, with some moving towards offering higher margin consulting services.

Last year, Wipro, the number three outsourcing company, bought US firm Infocrossing for $600m, a specialist in data and IT infrastructure management.

Aniruddha Dange, analyst with India Infoline, said the aim was to add high-value services to create “non-linearity” – to break the traditional direct connection between labour costs and revenues.

“Margins for the industry in our view will be on a declining trend so you might as well start acquiring now and creating non-linearity,” said Mr Dange. Infosys said it already had 2,100 consultants working in its SAP practice and the deal with Axon would give it another 2,000 consultants and access to the UK group’s customers.

“The transaction by Infosys will act as a catalyst for similar moves by other Indian IT companies,” said Manoj Agarwal, ABN Amro head of investment banking for India, who advised on the transaction.

Mr Gopalakrishnan said the two companies would compliment each other geographically. Infosys had a stronger presence in the US while Axon was concentrated in the UK with offices as far afield as Malaysia.

However, it would also dilute Infosys’ margins. The Indian company’s operating margin in the quarter ended June was double Axon’s operating margin of 15 per cent last year.

“The margins are lower than we have for Infosys so we have to work together over a period of time and see how we can improve that,” said chief financial officer V Balakrishnan.

Infosys reported revenue of $4.18bn in the year ended March, up 35 per cent, and net profit of $1.16bn, up 36 per cent.

Axon reported profit after tax of £20.2m and revenue of £204.5m for the year ended December, 2007. It reports its interim results on Tuesday.

Infosys gained 0.6 per cent to close at Rs1,706.45 in Mumbai before the announcement. The stock, which has a market capitalisation of $22bn, has dropped 3.6 per cent this year while the benchmark Sensex index has fallen 29 per cent.

Stephen Cardell, chief executive of Axon, said the takeover premium was “fairly reasonable”, even though it lagged other recent UK IT services deals. “If you look back in Axon’s history, we are highly impacted by the cycle. We ride high when the cycle is up and come down hard when it’s not.”

He said the cash offer provided investors with certainty given its project-led business and removed the perceived problem of founder Mark Hunter’s 11 per cent stock overhang. Mr Hunter left Axon last year; his stake is included in the 18.1 per cent of the total shareholding that made irrevocable undertakings to accept Infosys’ bid.

Mr Cardell said he would stay with the company and work to ensure good retention plans for “key people”.

Источник: Financial Times

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