Lodestone’s acquisition may not have an immediate impact on the fortunes of Infosys, but for the long term it is being seen as a good buy.
This was reflected in the rise of the Infosys stock less than a per cent to close the day at Rs 2,511. The acquisition for about $349 million (Rs 1,938 crore) fills a large gap in Infosys’ business, since the company has been eyeing a buy in SAP implementation in Europe for long now. With this acquisition, Infosys and Lodestone together have about 10,000 SAP consultants.
In August 2008, Infosys announced that it had made a cash offer to acquire UK-based SAP consulting company Axon Group for £ 407.1 million, but failed to close the deal as another Indian company, HCL Technologies, put in a higher bid to bag the firm.
Systems integration
Since the failed bid, Infosys has been scouting for acquisition and has managed to zero in on another four years later. While Prabhudas Leeladhar’s Shashi Bhusan believes that it is a step towards Infosys 3.0 (the IT major’s vision for tomorrow’s enterprise), it is also being seen as enhancing systems integration as well as the consulting practice of the company.
The Zurich-based Lodestone was founded in August 2005 by Ronald Hafner, Jurgen Bauer and Peter Odman, who had consulting and industry experience. As of date, the company has over 200 clients across several industries such as automotive (17 per cent of total revenues), manufacturing (15 per cent) and life sciences (28 per cent). After this acquisition, Infosys will have consulting and package implementation revenue of $1 billion.
According to Prabhudas Leeladhar, Lodestone reported revenue of 207 million Swiss francs for 2011, growing from 181 million Swiss francs during the previous year. Lodestone is present in 17 countries across five continents, with the headcount growing steadily since 2005. It has in its kitty marquee clients such as Allianz, BMW, Kimberly Clark, Sandoz SHAPE, Warner Chilcott, Munich Re, AGCO System and Roche. The acquisition will enhance the presence of Infosys in Europe and emerging markets such as Latin America and Asia-Pacific.
Domain expertise
Revenue for the Swiss company has grown at a compounded annual rate of 45 per cent (2005-11), whereas employee strength has grown by 57 per cent (2005-12). The net profit margin may be around 8 per cent and 10 per cent. Lodestone has a debt of about 19 million Swiss francs.
According to Religare Research, the acquisition is reasonably sized and should help address concerns on growth and unused cash. “We believe that it would be difficult to build a consulting vertical purely organically and acquisitions would be necessary to enhance reach and domain skills.”
Religare said while the deal offers limited client overlap, it brings in domain expertise and exposure to continental Europe and the life sciences vertical.