|
contents | business | |||||||
| Ovum on: Infosys to Acquire Axon as Indian IT Services Companies Expand in Europe by Alexander Simkin, senior analyst at Ovum Infosys has announced an agreed bid for Axon, valuing the UK-based business transformation and SAP specialist at Ј407 million. The deal, which is scheduled to close this November, will boost Infosys' European coverage and the depth of its consulting offering. The buy-out marks the beginning of a long-anticipated take-over of the European IT services sector by Indian players. Expect to see further consolidation over the next 12 to 18 months as Indian majors gradually grow in Europe by acquisition. Axon's offering complements Infosys' "Infosys needs to increase its European presence and the acquisition of Axon will contribute to that goal. In FY 2008, approximately Ј590 million of Infosys' revenues originated in EMEA. The acquisition will push that up by at least 20%, growing Infosys' European client base at a stroke. The synergy of Axon's onshore expertise at the top end and Infosys' strength in offshoring at the back will place Infosys' offering higher up the value chain." "The acquisition comes at a time of high utilisation levels of SAP-centred services. The demand for implementing upgrades, moving application management locations and other SAP-related consultative and delivery services is constrained by the available supply. The market is sufficiently buoyant that some end-users are struggling to control the cost of SAP-related services offered by major onshore S/ITS vendors. The answer to the question of mounting cost comes from offshoring. With Axon as part of Infosys, the Indian vendor will be better placed to generate recurring revenues from cost-conscious European end-users. The acquisition is yet another step towards greater convergence between on- and offshore providers." "Axon's expertise in key industries - government, financial services and energy utilities - is also of interest to Infosys. In-depth vertical knowledge is crucial in being able to position and sell high-level consulting and application services, and this is something that even the leading Indian players are only slowly gaining in Europe. Axon is a significant boost to Infosys' vertical credentials." The deal will encourage Indian IT services majors to acquire in Europe "Speculation has been rife for years that the Indian SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant and HCL) vendors would acquire in Europe seeking high-end business sales capability. The combination of onshore expertise and offshore cost-effectiveness promises to enhance the value proposition and European market penetration of Indian S/ITS vendors." "The acquisition of Axon by Infosys is the first purchase of its kind: the take-over of a European S/ITS vendor in the Ј400 million to Ј1 billion bracket by an Indian competitor. There have been acquisitions of European services firms by SWITCH companies before but all of the firms purchased have been small. They have also all been providers of onshore labour, specific intellectual property, niche consultancies or European resellers of Indian services. To date, none have been relatively large direct competitors." "Indian S/ITS vendors have traditionally been reluctant to grow by acquisition, preferring instead to do so organically. Infosys in particular has been wary of M&A. Its acquisition of Axon is therefore especially significant. Other SWITCH players will take note. The acquisition of Axon by Infosys marks a shift in the acquisition strategy of Indian vendors in Europe. Other SWITCH companies, not wanting to be left down the value chain and with reduced market share, will also buy European vendors in the Ј400 million to Ј1 billion size range." "By buying European companies, Indian vendors will obviate the challenge of recruiting quality, experienced staff in both India and Europe. However, Indian acquirers, more than their Western counterparts, face the challenge of integrating divergent organisational cultures within their new business. The Infosys acquisition will be a good test case of cultural integration." "We expect to see further convergence between on- and offshore providers in the European S/ITS market with several acquisitions of mid-size European vendors by Indian competitors over the next year to 18 months. Acquisitions of larger European S/ITS vendors in the Ј1-6 billion bracket, while possible, are less likely. Indian vendors lack the necessary cash line. Even if they can find the capital, the scale, complexity and disruption of the integration would make any of them reticent to act." write your comments about the article :: © 2008 Computing News :: home page |