Infosys badly wants an Axon to bolster Europe play

Infosys Technologies, India’s second-largest software services exporter, is scouting for acquisitions of the size of “Axon Corp,” the UK-based company it lost in a bidding contest with smaller rival HCL Technologies in 2008.

While Infosys does not regret losing out, it could certainly use a similar acquisition now to get its Europe act right, B G Srinivas, who heads the company’s Europe operations, said.

Most Indian information technology or IT firms have not been successful in Europe outside of Britain, while large European market IT markets such as Germany and France continue to be dominated by local firms such as Atos Origin, Capgemini and multinationals such as IBM and Accenture.

Srinivas said Infosys continues to scout for suitable buys in the continent, from where it draws slightly more than a fifth of its revenues, but is not finding the right fit.

“Something similar to Axon would be good but we are not able to find potential targets with a complementary services portfolio or intellectual property assets that make for a compelling buy,” said Srinivas, who is also a member of the company’s powerful, executive council.

The Axon deal was a significant landmark and a coming-of-age of sorts for the traditionally large-acquisition-shy Indian players.
In late August of 2008, just a month before the financial meltdown started with the fall of Lehman Brothers in the US, Infosys was on the verge of acquiring Axon for £407million or £6 per share. But a week after Infosys made its intent public, HCL made a counter-bid at £441million or £6.5 per share to win the deal.

“In hindsight, in terms of timing, it was in fact good that we did not have to spend that money on an acquisition, when the whole market was going down,” Srinivas told DNA Money in a call from London. “But the key is to move on.”

For Infosys, which got its first major international deal from the French arm of sports goods maker Reebok way back in 1988, the inability to scale up in a market like France is particularly glaring.

During the recently concluded World Economic Forum in Davos, Switzerland, Infosys senior management met with more than three dozen chief executives — of existing or potential clients, a majority of them from Europe — and the takeaways from those meetings has made Srinivas confident enough to say that business uncertainty in Europe has “significantly reduced.”    

“Client budgets are likely to be either flat or 2-3% up compared with 2010,” Srinivas said.

While the trend improves, Infosys continues to tweak its European strategy.

It has already hired local country heads for Germany and France and plans to make another 300 local hires for client-facing, front-end work such as technology consultants, project managers and delivery personnel.

“The Indian IT’s success in the last decade has been predicated on bringing work offshore with a thin layer of onsite sales/delivery to support,” said Samiron Ghoshal, partner and India IT advisory leader at accounting and advisory firm Ernst&Young. “But that will not work in culturally sensitive markets such as Germany and France.”

“In those markets you need a lot of local flavour, both from a sales and a delivery perspective — something that Indian firms have lacked by and large,” Ghoshal said. “Organically, that is a very difficult task.”

Srinivas said the country heads in France and Germany will have the geographical profit & loss statement responsibility and the various industry vertical heads within Infosys will be in the background helping them in the sales efforts.

“For an inorganic effort to be successful, Indian IT firms should essentially change their existing DNA and learn to let the local unit with a considerable degree of freedom,” Ghoshal said.

To be sure, inroads are being made, albeit slowly, in France and Germany. In the recently concluded quarter, the company bagged a $70 million deal in France, and a $30million deal in Germany, but there is a lot of headroom, Srinivas said.