Infy eyes buyouts in Europe, Japan

HERE & THERE: Eyes on you

Search Mode: Infy eyes buyouts in Europe, Japan

To Target Cos In $200 M-$300 M Range, Energise Non-Linear Business Strategy

Sreekala G HYDERABAD

INFOSYS Technologies is scanning the markets of Europe and Japan for acquisitions in the price band of $200-$300 million to energise its non-linear business strategy as well as to expand its geographic reach.
“We are looking at acquiring companies in Germany, France and Japan. These markets have started opening up and we are targeting companies engaged in consulting, BPO, packaged implementation services or IP-based firms as it will help us move up the value-chain considerably,” said Infosys CFO V Balakrishnan.
The deal size will be in the range of $200 million to $300 million. “It will be difficult to give a time frame for an acquisition as it is an on-going process. The effort is to find the strategic fit that is in line with our non-linear growth strategy,” he told ET. India’s second largest software exporter has already churned out a roadmap for non-linear growth. Unlike the traditional linear business model, where the revenue is effort-based (more the number of people working, more the revenue), the non-linear business model is based on outcome. So, with high-value services, the companies can demand a premium from its clients.
“It is not feasible for companies like us with about 88,000 employees to continue to bet on linear business model. Shortage of talent and rising cost of labour are other adverse effects of this kind of a business model. Currently, we focus on packaged implementation related to SAP and Oracle, where the margins are higher. Besides, consulting and IP-based services are other areas, where the services can be offered at a premium. An acquisition in these areas will help us achieve higher growth momentum,” said Mr Balakrishnan.
At present, consulting contributes about 5% of the company’s revenue while package implementation accounts for about 25%. “Application, development and maintenance (ADM) is still our largest services segment. However, efforts are on to move up the value chain and decrease our dependence on headcount. We believe adoption of non-linear growth model is a long term strategy,” he said.
According to an analyst, many companies are adopting inorganic growth strategy to move up the value chain. “With $2 billion cash and cash equivalents, funding an acquisition is not an issue for Infosys. Considering that an Indian IT services company spends about 50% of its revenue on employees, it will not be feasible for them to add head count in the wake of a rising rupee and an expected slowdown in the US. Consulting, package implementation and IP can help a company to go up the value-chain independent of people addition,” he said.
Last year, Infosys had taken over Philips’ finance and administration business process outsourcing (BPO) centres spread across India, Poland and Thailand for $28 million. In 2003, it had acquired Expert Information Services in Australia for $22.9 million.