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Infosys was last night considering raising its bid for a UK IT consultancy to steal back the chance of making the largest acquisition by an Indian outsourcing firm to date. The second biggest IT player in India urged shareholders of Egham-based Axon to “take no action” on a bid it received by HCL Technologies, the fifth biggest player. Issued on Friday, HCL’s all-cash offer, which values Axon at £441million, trumps the £407m bid Infosys made in late August, which won the backing of Axon’s board. But under the terms of the agreement, Infosys had until 3.30pm yesterday to respond with a counter offer or Axon could recommend the HCL bid to its shareholders. With a second offer from Infosys yet to emerge, and given assurances from HCL that it would consider countering their offer, again, analysts see HCL as the favourite. Axon, a SAP-led IT group, would better complement HCL than applications giant Infosys, as the risk of overlap is less, and the scope to cross-sell services to clients is greater. But neither the businesses of HCL nor Infosys are likely to swing the deal, rather Axon is expected to opt for the firm with the best bid price and most able management. “In that regard we’d have to favour HCL,” said Samad Masood, an analyst at the IT and software think-tank Ovum, which said fresh bidders for Axon may be incoming. “Not only because it has made the higher bid, but also because its management has significantly more experience of acquisition than Infosys.” Axon will look upon such M&A experience favourably, as fusing with either one of the Indian firms will require a smooth integration of cultures, clients and sales strategies. For the deal stipulating that Axon’s 2,000 consultants will be transferred, the compatibility with the eventual buyer is even more vital due to its value being tied up in this onshore workforce. Regardless of which Indian firm succeeds, the takeover is set to quicken the pace of European acquisitions by Indian IT outsourcers, which has already been gathering speed. Not only do they want to move away from a model confined to cheaper services thanks to low-cost labour, they also want to reduce their reliance on the volatile US market (and Axon has a significant stake in the UK public and defence sectors). Second-tier IT players on the subcontinent, like HCL, will keenly pursue similar deals to push their IT offerings up the value chain, so as to oust the top three – Wipro, TCS and Infosys. Meanwhile, the loser(s) of the bid for Axon will have an “even more voracious appetite” to acquire IT capability overseas, particularly in Europe where growth prospects are stronger than in the US. “Pressure on Indian firms to acquire onshore has been building steadily over the past three years,” Mr Masood explained. “Now economic uncertainty is spurring on even the most cautious Indian firms to accelerate their search for acquisitions and become more serious about securing significant footholds onshore. “In addition, such acquisitions will only increase the pace at which IT work is offshored to lower-cost locations outside of the US and Europe.” If successful with its “friendly” bid, HCL said it could offshore up to 40% of the work done by Axon, whose culture it said would fit in well with what it called was its own ‘employee first’ philosophy. The analyst reflected: “That’s much more offshoring than Axon could ever have done alone, and would be implemented in a fraction of the time by an Indian parent.” “We expect many more acquisition announcements from Indian IT services firms, particularly around those companies in Europe that are in the same mould as Axon: focused, fast-growing, high-value and close to customers.” Sep 30, 2008 Email this article Printer friendly page Previous Page
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