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Lodestone buyout: Has Infosys paid a tad more in return compared with HCL Tech-Axon deal?
Ranjit Shinde, ET Bureau Sep 11, 2012, 12.30AM IST
With the acquisition of enterprise solutions specialist Lodestone, Infosys may finally be able to put behind it the loss of opportunity to acquire Axon that was snapped up by rival HCL Technologies in September 2008. This time, however, Infosys appears to have paid a tad more in return for perhaps lower value compared with the HCL Tech-Axon deal.
(With the acquisition of…)
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Infosys has paid over $349 million or close to Rs 1,930 crore to purchase Zurich-based SAP specialist Lodestone, which has over 750 consultants. It works out to be over $465,000 or Rs 2.6 crore for each consultant. Contrast that with HCL Tech, which paid over $263,000 or Rs 1.5 crore to acquire the 2,500 strong consultancy practice of Axon. Full Coverage on Apple's new iPhone The Lodestone deal also looks marginally expensive, considering that Infosys paid 1.6 times Lodestone's latest annual sales of over $211 million. HCL Tech had paid close to 1.3 times for Axon. The Indian IT firm expects Lodestone's acquisition to improve its presence in the European market for enterprise IT solutions based on the SAP platform. However, its impact on the parent's financials will be far more limited when compared with the magnitude of benefits that HCL Tech enjoyed through Axon's merger. The relatively tiny size of Lodestone's operations is a major reason for this. Lodestone's annual revenue is just over 3% of Infosys' trailing 12-month top line of $7,075 million or Rs 35,865 crore. In contrast, Axon was more than one-fourth in size when HCL Tech acquired it. In addition, at the time of acquisition, Axon was more than double in size and with a head count that was three times more compared with the current revenue size and employee base of Lodestone. Also Read:Infosys to acquire Lodestone Holding for Rs 1,932 crore; may revise guidance Infosys BPO to buy US-based BPO unit of Marsh & McLennan Lodestone is perfect fit to Infosys: SD Shibulal Industry trackers reckon that the Lodestone acquisition is, at best, a step in the right direction, but may not be adequate to end Infosys' current struggle to grow revenues. "The deal will improve Infosys' European footprint. But given the small size of operations, it doesn't look as aggressive as Axon's takeover by HCL Tech," said Angel Broking's IT analyst Ankita Somani. The profitability of the acquired business will be another sore point for Infosys investors. Though Infosys has not mentioned the operating margin of Lodestone, SAP-related business derives a margin of less than 10%,
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according to industry watchers. This compares with a near 30% operating margin of Infosys. "The margin gap shows that Infosys may have increased its focus on generating more volumes rather than simply protecting their profitability," said Dhananjay Sinha, co-head of institutional equities, Emkay Global Financial Services. However, Lodestone's lower margins will not impact the parent's profitability much due to the smaller size of operations. But growing concerns over the deteriorating economic scenario in the Eurozone may create some challenges for Infosys once it gets ready to cross-sell solutions to Lodestone's existing clients. The deal may prove to be a good long-term strategy without much influence or impact on the near term fortunes of the erstwhile IT bellwether.
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Readers' opinions (16)
Sort by: Newest | Oldest lmcisgone (europe) 12 Sep, 2012 01:10 AM It is not mentioned in the article at all, but please note buying a consulting company is a bit extraordinary - you buy only people. Some will say you also buy a brand (but Lodestone was not branded in the market too much). Someone will say you buy the clients (but the client relationship is based on the people - partners relationships). So to be honest - Infosys bought people who did not want to be bought. There are things that cannot be measured. There is injured proud of Swiss consultants who do not want to be governed by Indian managers. Lets make it clear: the main beneficient of the deal is not Lodestone, not Infosys. It is Ronald Hafner who sold the overinvested company for relatively good money (having in mind 2013 will be rather tough in Europe). So the question for the reader reflection: how do you think Infosys convinces people from Lodestone to stay with them? You will not buy people loyalty. Hari (Hyderabad) replies to lmcisgone 12 Sep, 2012 08:39 AM Pls note that, per the agreement Infy will pay one third of the purchase consideration after 3 years if the key employees of Lodestone are retained. Hence your question reg (key) people staying is already answered. Also pls note branding is for the market, Lodestone market is Europe, particularly continental Europe and Lodestone had a respected brand in this market. Guest (India) 11 Sep, 2012 07:31 PM
Infosys will never throw away money on worthless deals. Please do not compare deals made by companies this way. The basic flavours of these deals are different and are need based Ra (US) 11 Sep, 2012 06:30 AM Infosys is as corrupt as 2G scam. They take all the tax exemptions from goverment and provide nothing for the people. This fake company should be shut down. Indian (Mysore) replies to Ra 12 Sep, 2012 11:22 AM lol..did this article mention about anything tax exemption?? and for your information.. Infosys is the most ethic based company than any other Indian Service company! Did you ever listen people saying Infy balance sheet is goofed-up, ex: satyam? Did you even hear about Infy doing lobbying with people like Nira Radia, ex : tata, Did you ever hear, Infosys giving pink slips, ex: IBM, etc?? And you talk about 2G scam!I pity you.. Rahul (Pune) replies to Ra 11 Sep, 2012 12:42 PM Exemptions r a part of govt. policies to attract investments in a state. Any eligible org may avail the benefits. No IT org is given any undue favours. On the contrary todays ET publishes a news going 'Government may dilute rules to save Kingfisher Airlines', which in my opinion should be extended to the entire ailing aviation sector. Merely calling an industry behemoth corrupt is in a bad taste. pal (location) replies to Ra 11 Sep, 2012 12:11 PM absolutely correct. rsm (Blore) replies to Ra 11 Sep, 2012 09:29 AM Bird brain, How is your job in KFC ? Rahul (Pune) replies to rsm 11 Sep, 2012 12:55 PM Sorry pal i m not in KFC. Purely applying common sense here. aam admi (India) replies to Ra 11 Sep, 2012 07:15 AM AGREE harry (gurgaon) 11 Sep, 2012 04:50 AM the negative ET at work again....infosys paid a tad more...you must have access to something special ..ha ha ...look at the valuations they have paid much lower for this buy Ra (US) 11 Sep, 2012 04:03 AM Infosys is a fake company ! Govt . Should bust this company and shut it down. harry (gurgaon) replies to Ra 11 Sep, 2012 04:48 AM you should be sent to mental asylum first ...pls urgently see a doc pal (loc) replies to harry 11 Sep, 2012 12:29 PM Lyndia is a 24 7 asylum...we will live here...and will make like us aam admi (India) replies to harry 11 Sep, 2012 07:15 AM You need to seen one first. pal (location) replies to aam admi 11 Sep, 2012 12:14 PM he is harry potti.. » READ ALL COMMENTS
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