By snatching Axon from under the nose of its larger rival Infosys for £441 million, HCL entered the SAP consulting and integration market with a bang. However, eight months down the track, is this bold move travelling smoothly? Client growth has provided almost immediate justification and diversified the verticals mix. However, with most of Axons revenues emanating from discretionary sources, there is a risk that such spend may begin to slow.
HCL is no stranger to inorganic onshore growth, and the planned integration period is short: six months to combine 4,500 consultants, disparate sales and delivery organisations, and cultural ambiguities across 24 countries is no mean feat. Results are already starting to trickle through: $60 million from three of Axons top five customers in defensive verticals such as public sector and utilities.
To date, the Axon and HCL sales and marketing teams are fully integrated, with back-office opex savings already realised and with Axon experts being utilised across domains and verticals in accounts that were previously untouched by HCL. The single end-to-end delivery methodology is targeted to soon be completed, at which point new offerings will be available to the market. Lets hope the branding and marketing is consistent with the combined entitys client-base expectations.
HCLs big gamble
Cynics could state that HCLs shock acquisition was poorly timed, especially given the level of debt taken on to finance the deal. Any organisation that uses acquisitions to expand would have undertaken rigorous assessment on whether $636 million of short-term debt in an uncertain market is a risk they can bear.
However, when placed into the overall context of HCLs ambitious growth strategy (already considering infrastructure and Oracle), the Axon acquisition is accelerating HCLs plan to offer end-to-end services and enter into previously uncontested defensive verticals such as public sector and utilities (now 34 per cent of HCL revenues). Key will be the ability to expand the footprint across the joint client base.
Until full-year results are available and the integration is complete, one can only speculate as to the real influence it is having on HCL. Axon has increased HCLs SAP proportion of revenues from 12.5 per cent to 25.4 per cent, and given that HCL Tech (non-SAP) actually shrank by 3.6 per cent, this is already providing a positive boost. Interestingly, neither Axon nor HCL has lost any customers since the acquisition.
One target of the acquisition is tapping some of the $900 million that Axon had to spend on other external service providers. This was to cover components of larger deals that Axon did not have the depth and capability to cover pre-HCL ownership, which it is now able to support.
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