Infosys eyes lost mojo in Lodestone buy

Infosys made up for missed acquisition opportunities dating back several years by buying Lodestone, a Zurich consulting company that specialises in business software SAP. The buyout will help it ensure a slender lead over Cognizant Technology Solutions, a company that overtook Infosys in quarterly revenues in the June quarter.

In 2008, Infosys had tried to acquire U.K.-based Axon, in a similar space, but ceded ground to HCL Technologies who put in a higher bid.

Infosys's visibly ecstatic management, keen to shed off its "conservative" and "acquisition-shy" image, on Monday insisted Lodestone with a price tag of $345 million was a better buy. Lodestone's consultants are billed at $175 an hour, one of the highest in the industry. In comparison, Axon's consultants were being billed at $130 an hour when Infosys was scoping the company for a buyout in 2008.

"Lodestone's positioning in the market is two levels higher compared to Axon," an Infosys executive who did not want to be quoted said. "Axon brought in consulting and implementation of SAP. However, after the HCL acquisition, the implementation services have got commoditized."

While Infosys had valued Axon at almost 2X its revenues ($753 million) in 2008, the Lodestone buy has been relatively cheaper. Lodestone is expected to rake in revenues of $250 million in 2012.

"It was worth the wait," said CFO V. Balakrishnan. The acquisition will add customers such as BMW, Deutsche Telekom, British American Tobaco and Novartis to Infosys's customer portfolio.

Lodestone has 200 customers and most of them, the Infosys management said, were complimentary to the company's current client base.

The acquisition will help Infosys maintain its annual lead over Cognizant, a New Jersey-headquartered company that runs most of its operations in Chennai. Infosys has guided for 2012/13 revenues of $7.34 billion. Cognizant's financial calendar ends in December and the firm too expects to generate revenues of $7.34 billion.

Tata Consultancy Services, India's No. 1 technology services company by revenues, and Cognizant were in fray for bidding for Lodestone, according to earlier media reports.

Lodestone has been growing at a compound growth rate of 18 per cent for the last five years, which is significant considering the fragile business climate in Europe where it generates most of its revenues. Germany contributes 23 per cent of the company's revenues while Switzerland generates 50 per cent.

But more than the short-term inorganic revenue addition the acquisition ensures, Infosys is perhaps more excited about what it calls "flow true". In other words, currently, for every $1 of consulting services sold, the company has been able to sell $2-$3 of traditional IT services. If it manages to do the same thing with Lodestone, armed with its 750 consultants in automotive, CPG and Life Sciences verticals, it could help Infosys claw back much of its sheen, lost to Cognizant and TCS over the past three years.