In the largest acquisition by an Indian technology services firm, Infosys Technologies Ltd made a £407.1 million, or Rs3,269 crore, cash offer to acquire the UK-based Axon Group Plc.
If the deal goes through, it would not only expand the Indian company’s key SAP software and consulting capabilities, but also enhance its footprint in Europe, equipping India’s second largest IT services company to bid for larger, transformational outsourcing contracts.
The London Stock Exchange listed Axon reported a net profit of £20.2 million (Rs160 crore) on revenue of £204.5 million (Rs1,660 crore) for 2007. Axon, which has no debt on its books, provides consulting services to customers such as British Petroleum Plc. and Xerox Corp. that have chosen SAP AG’s business software as their company-wide platform. Founded in 1994, Axon has offices in the UK, North America, Malaysia and Australia, with about 2,000 employees.
“The strategic combination of our groups will accelerate the realization of our common aspiration—that of becoming the most respected provider of business transformational services in the global marketplace,” said S. Gopalakrishnan, CEO of Infosys, in a statement.
A global implementation partner for SAP, Infosys services some 100 customers in 20 countries with a team of 2,100 consultants. About one-fourth of Infosys’ earnings came from consulting and enterprise solutions.
Infosys is offering £6 for each Axon share, including any interim dividend that might be declared by the board of Axon, which is meeting on Tuesday as part of the company’s quarterly results announcement. The price is a 33% premium over the average price of last six months, and a premium of 19.4% on the closing price of 22 August, the last trading day for Axon. Monday was a bank holiday in the UK. Axon shares closed Friday at £5.025, giving the company a market value of $600 million, versus Infosys offer of $753 million.
Infosys said that boards of both companies have approved the transaction, which is likely to close, subject to various approvals, in November. Infosys chief financial officer V. Balakrishnan said founders and key staff representing 18.1% shares have agreed to sell. Axon will be delisted from LSE once the deal is concluded. Standard Life Investments (7.04%), Blackrock (6.45%), Aegon (5.99%), UBS (5.01%) and JP Morgan Chase (4.79%) are some key institutional shareholders of Axon.
“The valuation does not look to be expensive when compared to other such deals considering that Infosys is paying 20 times Axon’s last year’s profit,” said Anurag Purohit, research analyst at Religare Securities Ltd. “Prima facie the deal looks quite fair by value.”
Profit margins of Axon are currently well below those of Infosys. Axon’s operating profit margins for 2007 stood at 15% and net profit margins at 9.9%, while tightly run Infosys had an operating profit margin of 30.4% and a net profit margin of 26.8% in the April-June quarter.
If consummated, this would only be the third acquisition for Infosys since it became a listed company in June 1993. It bought Expert Information Services Pty Ltd in December 2003 for Rs104 crore and bought three back-office delivery centres for Rs114.8 crore from Royal Philips Electronics in July 2007.
Infosys trails Tata Consultancy Services Ltd in India in the business.
Wipro Ltd’s 2007 deal to buy US technology firm Infocrossing Inc. for an enterprise value of about $600 million was the previous highest tech services deal out of India.
ABN Amro Corporate Finance Ltd gave financial advice to Infosys while Citibank represented Axon.
Source: Livemint