Will Infosys' acquisition of Lodestone & Marsh BPO Help Its Flagging Revenues?

Infosys earlier this year was beaten to the third post by Cognizant Technologies in terms of revenue.  This, after months of chasing as Infosys was hardly increasing its revenue while Cognizant was literally leapfrogging its yearly business.  And the conservative business that the founders of Infosys practised was of no help too.  It was only after ex-CEO of ICICI, KV Kamath was appointed as the Chairman by Infosys that the business actually generated some steam.  Repeatedly, Kamath exhorted the company for some big buys as the company was sitting on a horde of cash (around US$ 4 billion) and not using it productively to increase the business.  This cash reserve is almost twice that of the leader Tata Consultancy Services (TCS).

With companies like Wipro, HCL, Mahindra-Satyam breathing down its neck, Infosys had to do something.  And now Infosys has made 2 acquisitions. It has bought Lodestone Holding of Sqitzerland for $350 million (approximately Rs 1950 crores).

Lodestone’s Rs 1209 crores revenue in 2011 is just around 4% of Infosys’ revenues but its 750 odd empoloyees of Lodestone, which is a specalised SAP consultancy with almost 200 clients which could provide Infosys with instant business that it urgently needs after 2 quarters when it had missed the projected revenues.

Also, Infosys BPO, the business process outsourcing arm of Infosys acquired Marsh BPO, the BPO arm of the US based Marsh & McLennan Companies.  The cost of acquisition wasnt revealed.

Why Lodestone?

  • Acquisition is in line with Infosys 3.0 strategy wherein consulting and system integration play major role other than products and platforms
  • It is also in line with company’s strategy to increase its pie in continental Europe which accounts for about 10% of Infosys’ European revenues

Integration plan

  • Transaction is expected to close by the end of October 2012
  • Lodestone to continue as a subsidiary of Infosys in Europe
  • Ronald Hafner will continue as the CEO of the subsidiary while B G Srinivas,board member and Head of Europe, Infosys will be the chairman

What Lodestone brings to the table?

  • 850 employees including 750 SAP consultants
  • Over 200 clients including names like BMW, Allianz, Kimberly-Clark, Sandoz SHAPE, Warner Chilcott. The clients Lodestone brings belong to diverse sectors such as manufacturing, automotive, life sciences
  • The acquisition will make Infosys’ consulting revenue focussed on SAP practice to reach $1 billion per annum
  • Consulting & SI to account for over 32% on Infosys’ overall revenue post the integration

Realistic valuation

The acquisition is valued at 1.3 times of Lodestone’s enterprise value/sales in Calendar 2012. This is a favourable valuation for Infosys when compared to other similar acquisitions. For example, HCL-Axon deal was valued at 2.2-times EV/sales; the Wipro-Infocrossing deal was valued at 2.6-times.

Above news courtesy: Business Standard

Other posts on Infosys

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Infosys buys UK’s Axon for $753 million
Infosys’ quarterly revenue crosses US$ 1 billion

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