Infosys has announced an agreed bid for Axon, valuing the UK-based business transformation and SAP specialist at £407 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.
Axons offering complements Infosys
Infosys needs to increase its European presence and the acquisition of Axon will contribute to that goal. In FY 2008, approximately £590 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 Axons 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.
Axons 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 £400 million to £1 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.
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