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Does Infosys' acquisition of UK SAP consultancy Axon Group signal the start of the Indian IT services takeover?

In August 2008, a deal was announced that could well mark the beginning of a new chapter in the history of India’s remarkable IT industry

Infosys, one of the pioneers of the market, revealed it was acquiring UK-based SAP consultancy and services provider Axon Group for £407.1 million – a 19% premium on the company’s average share value for the last six months.

The deal is Infosys’s largest ever acquisition and the largest cross-border acquisition by any Indian IT company. The closest was Wipro’s $600 million acquisition of Infocrossing in August last year.

Axon is a shrewd investment, for two reasons. Firstly, in its most recent financial half-year, the company derived 42% of its £123.9 million revenues from the North American market, thanks in part to its own acquisition of US-based SAP practice EnterSys earlier in the year. Axon therefore represents an opportunity to push business out both East and West.

“The objective is to create a leading global SAP services provider,” said Infosys CEO Kris Gopalakrishnan.

Secondly, Axon has a customer base that has not always been open to India IT services companies.

It has a large public sector footprint that includes ongoing engagements with Transport for London, and Manchester, Birmingham and Wolverhampton city councils.

Analysts see the Infosys/Axon deal as signaling many more ‘outbound’ acquisitions from Indian companies. There were four on a smaller scale last month: HCL purchase US-based telecoms expenses management services company Control Point Solutions, ITC Infotech acquired New York-based IT quality assurance services company Pyxis Solutions; India BPO company Aegis bought PeopleSupport of the Philippines, a specialist in customer support; and Genpact, also a big BPO player, bought GE Money’s personal finance processing centre in Guatemala.

“We expect such a trend to continue and we believe the transaction by Infosys would act as a catalyst for similar moves by other Indian IT companies,” Manoj Agarwal, ABN AMRO’s head of Investment Banking for India told the country’s The Economic Times newspaper.

Indeed, the ‘Big 3’ Indian outsourcers – Infosys, Wipro and TCS – have made no secret of the intention to expand their presence in Western Europe: they need local knowledge and experienced consultants to realise their ambitions.

The companies have enough cash in reserve, and the rupee exchange rate flatters their wealth and the IT services market is rapidly consolidating.

Further reading

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MERGERS AND ACQUISITIONS JULY 2008
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MERGERS AND ACQUISITIONS JUNE 2008
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MERGERS AND ACQUISITIONS MAY 2008
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WAN optimisation pioneer falls to independent upstart as market attracts heavyweights