Infosys May Spend Up to $500 Million on European Deal

By Cornelius Rahn - Apr 15, 2012

Infosys Ltd. (INFO), which sits on the largest cash pile among India’s computer-services providers, is prepared to spend as much as $500 million on a single European acquisition.

Infosys may make another attempt to acquire a company of that size after it walked away from a plan to buy U.K.-based Axon Group Plc for 407 million pounds ($645 million) in 2008, said Chandrashekar Kakal, the company’s global head of business IT services.

“We do have cash, but we are looking for a company which adds to our capability and becomes complementary to our growth rather than becoming a laggard,” he said in an April 13 phone interview.

Infosys’s war chest of about $4 billion is more than twice the size that of bigger peer Tata Consultancy Services Ltd. (TCS) Indian software companies, after a decade of growth fuelled by the outsourcing of jobs from the U.S., are turning to acquisitions to expand into Europe, currently the second-largest source of their revenues. Making purchases in Europe may help Bangalore-based Infosys achieve a target of getting 40 percent of its sales from the region, up from about 22 percent.

In 2008, Infosys decided against further pursuing a plan to buy Axon after its bid was trumped by New Delhi-based HCL Technologies Ltd. In 2006, Infosys spent $115 million to purchase Citigroup Inc.’s stake in Progeon Ltd., a back-office service provider controlled by Infosys.
Bidding Competition

The company may also make a number of smaller purchases worth about $30 million to $50 million each, Kakal said, adding that such companies would be easier to integrate. He declined to identify any potential targets or specify sectors where acquisitions may be made.

Infosys, which designs and builds software programs and provides back-office support to clients including U.K. phone company BT Group Plc (BT/) and oil company BP Plc, was founded by seven engineers in 1981 with $250 they borrowed from their wives.

Kakal, who joined the company in 1999, oversees Infosys’ development, maintenance, testing and infrastructure management services with about 60,000 employees, according to the company’s website.

While Forrester Research Inc. (FORR) forecasts that western and central Europe will have the world’s slowest growth in technology spending in 2012, Infosys says that Indian outsourcing companies could benefit as businesses in Europe need to cut costs.
European Push

Infosys Chief Financial Officer V. Balakrishnan said in a Feb. 29 interview that opportunities for acquisitions are increasing because more European companies have “broken” cost structures. India’s second-biggest software exporter is looking to buy companies that own intellectual property as well as niche consulting firms and corporations that will boost business in France and Germany, he said at the time.

Companies and governments in France and Germany spent a combined $178 billion on information-technology goods and services last year, according to Forrester Research. Together, that made them the world’s third-largest technology market.

The Indian service provider has made inroads into the German market after switching from a sales approach that used almost exclusively English speakers to one that employs 20 percent local consultants, with offshore staff being limited to about 60 percent, Franz-Josef Schuermann, who heads Infosys’s operations in the country, said in the joint interview with Kakal. The company is currently benefitting from the growth of online retailing in the region, he said.
Growth Needed

Worldwide spending on information-technology services will rise 1.3 percent to $856 billion in 2012, slowing from a 6.5 percent increase last year, according to an April 5 report by Stamford, Connecticut-based research firm Gartner Inc.

Infosys also needs to boost growth after the company last week forecast sales that missed analysts’ estimates.

Sales in the year that began April 1 may be between 384.3 billion rupees ($7.5 billion) and 391.4 billion rupees, Infosys said in a statement April 13. Analysts expected revenue of 396.3 billion rupees for the period, the median of 64 estimates compiled by Bloomberg. The company also reported fourth-quarter sales that were lower than analysts predicted.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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