Infosys said it has signed a definitive agreement to acquire Lodestone Holding, a management consultancy firm in Zurich with skills in the area of SAP software, as the Indian company attempts to move into higher-value services.
The outsourcer said it was acquiring Lodestone for an aggregate enterprise value of 330 million Swiss francs (US$350 million) in cash. The transaction is expected to be completed by October and is subject to customary closing conditions. Enterprise value includes debt, preferred stock and cash reserves apart from the market capitalisation of a company.
Lodestone will bring more than 850 employees, including 750 experienced SAP consultants to the company. By the acquisition, Infosys hopes to add over 200 clients from Lodestone across industries including manufacturing, automotive and life sciences, taking the company’s combined revenue from consulting focused on SAP programs to more than $1 billion.
The Lodestone acquisition will also enhance Infosys’ global presence, particularly in continental Europe and emerging markets such as Latin America and the Asia Pacific region, the company said in a statement.
Lodestone, with revenue of 207 million Swiss francs in 2011, will bring to Infosys a large number of highly-skilled staff in Europe who can help it boost its revenue from business transformation deals on the continent, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune. Lodestone also has a presence in 17 countries around the world.
The acquisition will help Infosys increase its consulting business in some markets such as automotive, manufacturing, and life sciences, where it hasn’t been particularly strong, said Salil Dani, practice director for global sourcing at Everest Group. Consulting and systems integration, which is currently 30 per cent of revenue, will go up as a percentage of revenue, though it will take about two quarters for the integration to be complete and the benefits realised, he added.
Infosys like other Indian outsourcers has been trying to reduce its dependence on time-and-material contracts that are billed by the number of staff working for a particular duration and instead focus on higher-value services such as consultancy, technology platforms and products in the areas of cloud computing, social media and mobile.
The company has been hit by slower spending in key markets such as the U.S. and Europe. In the quarter ending June 30, Infosys’ annual revenue growth tumbled to about 5 percent in U.S. dollar terms in the second quarter, down from the 23 percent revenue growth the company had posted in the same quarter last year. Growth was higher in rupee terms because of the depreciation of the rupee against the U.S. dollar.
Infosys has a sound blueprint for its expansion into new businesses like consulting, but it was not very good at executing on that strategy, Apte said The acquisition can be seen as a good first step, but will have to be followed by other acquisitions, he added.
The company had cash and cash equivalents amounting to $3.7 billion at the end of June and has indicated that it will acquire companies in areas such as products and platforms.