India’s second-largest IT services exporter Infosys is open to $500-700 million acquisitions as it looks to gain a firmer foothold in geographies like Japan while also boosting certain business verticals. The largest acquisition to date by Infosys has been that of Lodestone for around $350 million three years ago.
By PP Thimmaya
In an exclusive interaction with FE on Tuesday, Infosys chief operating officer UB Pravin Rao said, “We are open to a $500-700 million acquisition as size will not be a big deterrent for us. If we are confident of synergy benefits and fewer integration challenges then we are open for bigger acquisitions.”
Funding these acquisitions will not be a challenge for Infosys as it boasts of cash reserves of $5.5 billion as of December 2014. Infosys is following a dual mandate — a merger & acquisition (M&A) strategy looking at the buyout of smaller companies in the area of advanced technologies while at the same time looking for opportunities to gain further traction in business verticals such as healthcare and specifically the US government.
Rao said, “We will also look at other aspect of our M&A which is wide spaces or areas where our presence is limited either in geographies or in some of the verticals.” He cited the instance of the healthcare vertical where its presence is limited when compared to competition. The healthcare vertical accounted for a mere 2.2% of the Infosys revenue at the end of December quarter in 2014.
Similarly, Infosys is also keen to expand its reach in the US business segment. The company has its presence there through its subsidiary Infosys Public Services which focuses on the healthcare and public sector organisations. The Infosys COO said the US government business segment is an area which they are pursuing and any good company with a fair amount of business in that space they would be happy to acquire.
In addition to the vertical focus, Infosys is also keen to expand its presence in geographies such as the continental Europe and Japan. The IT major has already made a major presence in the continental Europe through Lodestone but Japan would be a new area. TCS, the closest rival of Infosys, made its big move in Japan through a majority stake in its joint venture with Mitsubishi.
Infosys is also now more open to acquire IT captives unlike in the past. “In the past, we were reluctant to acquire captives, but in the last few years we are more open to buying those, provided we get them for a good valuation,” Rao said.
Infosys had recently announced the acquisition of Panaya for $200 million which provides automation software which falls in the domain of advanced technologies.
The Infosys COO said they would continue to look at acquiring companies similar to Panaya in technology areas such as automation, big data, collaboration technologies.
“This continues to be one area and this will probably be smaller companies but valuation could be fairly high from revenue multiple point of view,” Rao said. Panaya acquisition was valued at six times its revenue, though considered high, this is generally the norm for higher-end technology firms.