Infosys acquires Lodestone for Rs 1,932 crore

In one of the first step towards ensuring the success of their 3.0 strategy, IT bellwether Infosys announced the acquisition of Zurich-based consulting major, Lodestone in an all cash deal of worth $350  million (Swiss Franc 330 million/ Rs 1,932 crore).

Though the deal size is small compared to their cash pile of nearly Rs 20,000 crore, the acquisition has been a surprise considering that they (Infosys) are perceived to have an  ‘averse’ attitude towards acquisitions. 

Commenting on the transaction S D Shibulal, CEO & Managing Director, Infosys said, “A key plank of our Infosys 3.0 strategy is to expand our Consulting & Systems Integration business. This acquisition fits perfectly into that strategy.”

Shashi Bhusan, Research Analyst from Prabhudas Lilladher said, “After losing-out on Axon acquisition, Infosys organically grew its consulting and system integration (C&SI) revenue to $525m (5% CQGR over last 20 quarters). We see this acquisition as much needed inorganic booster for the company.”

Though the deal was a booster for the company, will it change the market perception of Infosys?  Ankita Somani, an IT consultant with Angel Broking disagrees and says, “This was a small acquisition compared to their cash pile. Though this is in the right direction, it does not mean that they (Infosys) have become aggressive.” Analysts also opined that the deal could not be seen as better times ahead for the industry and not setting the tone for IT segment due to the presence of other big players as well.

Infosys CFO, V Balakrishna stated that they would pay 2/3rd of the agreed deal now and complete the rest of the payments after three years even though the acquisition would be completed by October 2012.

On their decision to acquire in Europe considering the economic conditions there, the company said that Lodestone earned 50% and 23% from Switzerland and Germany, which were doing better than other countries.

But the better news for Infosys would be the addition of nearly 200 clients including auto giants BMW and drug maker Roche, across sectors such as manufacturing, automotive and life sciences among others to its existing client list of over 700.

Stating that the region (Europe’s) contribution to their revenues was around 10%, the company stated that post-acquisition, the combined consulting practice focusing on SAP programs will deliver revenues of more than $1 billion. The C&SI space contributes around 31% of the company’s revenues.