Infosys to acquire Axon Group

In what will be the largest ever overseas acquisition by an Indian company in the IT services domain, Infosys Technologies has made an offer to acquire UK-based SAP consultancy services firm Axon Group in an all-cash deal valued at £407 million (Rs 3,310 crore, $753 million). The move marks a clear attempt by India’s second largest software services exporter to move up the value chain. Kapil Dev Singh, country manager for technology research firm IDC India, said the acquisition signals a trend among Indian IT services firms to enhance their focus from low hanging maintenance kind of services, with a higher bias for top line growth, to high-end domain services that could add to the bottom line.Infosys will pay a price of $11.12 per share for the London Stock Exchange-listed Axon, which is a 33% premium over its six month average price and 19% premium over its closing price last Friday. Axon, which has 2,000 employees, reported a revenue of £205 million (Rs 1,660 crore) and a profit after taxation of £20 million (Rs 160 crore) in the year ended December 31, 2007. The UK company’s revenue is estimated to be growing at 42.7% year-on-year.Infosys is paying nearly double Axon’s revenue to buy it. The acquisition helps Infosys narrow the lead that TCS has over it. Last year, TCS recorded a revenue of $5.7 billion, as against Infosys’ $4.18 billion.Explaining the rationale for the deal, V Balakrishnan, CFO of Infosys Technologies, said at a press conference on Monday that the company’s SAP practice revenue grew by 65.5% (CAGR over last three years) and is showing good growth momentum for the future. “Around 19% of our revenues come from enterprise solutions of which one-third is due to SAP. With Axon, we can strengthen our offerings to high-end clients as well as get consultancy services for SAP segment,’’ he added.Axon provides consultancy services that designs, implements and supports solutions in companies that have selected SAP as their strategic enterprise platform. The company services 200 plus clients in 30 countries. About 55% of Axon’s revenues are from the European region. This will help Infosys in its diversification strategy. The company has been trying to reduce its dependence on the US, given that the US economic slowdown is compelling clients there to delay orders.“Axon is looking for financial scale, global delivery and leveraging on its growth,’’ said Balakrishnan. Infosys MD Kris Gopalakrishnan said the company expects the deal to be completed by November 2008. Infosys had last year acquired three captive BPOs from Netherlands-based Philips NV for $250 million. It had also acquired Expert Information Services of Australian in December 2003 for about $23 million.