Infosys Technologies’ proposed £407 acquisition of United Kingdom-based SAP services provider Axon Group plc signals ongoing consolidation in the IT services market and a desire by larger providers to counterbalance their exposure to the slowing North American economy, experts said this week.
Infosys, a $4.4 billion Bangalore, India-based provider of IT outsourcing and consulting services, said this week that it hopes to complete its acquisition of Axon by November. Infosys’ bid for publicly traded Axon represented a 19.4% premium over its share price just prior to the deal’s announcement. Axon’s share price quickly rose to around £6, the level of the Infosys bid.
Despite widespread speculation that a counteroffer for Axon might be forthcoming, none had yet surfaced by press time.
“Axon is a very important SAP integrator that had a lot of people looking at it, so I wouldn’t be surprised if there were a counterbid,” said Ray Wang, an analyst at Forrester Research, in an interview.
In remarks to financial analysts following disclosure of the Axon takeover bid, Infosys Chief Financial Officer V. Balakrishnan said his company is better positioned than potential rival bidders because Infosys’ offer has received the unanimous support of Axon’s board.
Infosys’ bid for Axon, according to Wang, is part of a broad consolidation trend in the enterprise applications consulting market. Increasingly, both application providers, such as SAP, and their consulting partners are pushing to develop deep vertical industry expertise. In Infosys’ case, the Axon acquisition will provide key accounts and expertise in important markets such as process manufacturing, mining, and utilities, Wang said.
The same forces have been at work outside the SAP ecosystem. Among Microsoft Dynamics consulting partners, for example, Columbus IT has grown rapidly through consolidation.
Consolidation has been less pronounced so far among Oracle consulting partners, but acquisitions in that space should pick up also, Wang predicted.
With Axon, Infosys will gain about 2,000 employees and a customer base that spans 30 countries. Founded in 1994, Axon had been growing rapidly, aided by an acquisition campaign of its own. The company has completed seven acquisitions since the beginning of 2005. Between 2003 and 2007, Axon’s revenue grew from £49.3 million to £204.5 million.
If the deal closes, Axon would be added to an already fast-growing SAP consulting business at Infosys. The company, which gets 24% of its revenue from consulting and enterprise solutions, has seen revenue from its SAP practice grow by 65.5% over the past three years. Infosys has about 2,100 SAP consultants.
Besides giving Infosys a stronger stake in the consulting and enterprise solutions space, the Axon acquisition also would help reduce the company’s dependence on slowing North American markets. Last month, Infosys reported a 21% rise in quarterly profits, but warned of a possible slowdown due to weakening economic conditions in North America, where it garners 62% of its revenue.
Axon, meanwhile, receives 61% of its revenue from Europe, the Middle East, and Africa, with 34% coming from North America.
Other Indian IT services providers such as Infosys rival Tata Consultancy Services also have been expanding their operations in Europe and Asia.