Narayana Murthy gets aggressive on Infosys Ltd attitude

Directs team to look for targets in Europe & US,shed complacency.

Infosys executive chairman NR Narayana Murthy is in the process of taking direct control of the M&A team at the IT major’s headquarters. He has directed the team to look for more targets in Europe and the US,and has asked the management not to be content with last year’s acquisition of Swiss consultancy Lodestone.

Murthy is looking at targets that would bring in strong revenue streams coupled with a significant client base,sources said. It is understood that Infosys is very actively looking at companies in areas such as infrastructure management services,system integration,consulting and SAP implementation,cutting across verticals such as healthcare,automotive and manufacturing.

Infosys has now set its target higher in terms of the size of acquisitions, with the likely buyout value potentially going all the way up to $1 billion,sources said. In the past,the company always preferred smaller buyouts that could be easily integrated. Funds for further M&A activity would not be much of an issue as the company has cash reserves of R23,958 crore.

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Sources said Infosys is also looking at the possibility of taking over the IT set-up of the large companies,as it did with the takeover of Philips BPO. Murthy,at the recent annual general meeting,indicated that the company would aggressively chase deals with large revenue-yielding outsourcing projects involving application development,maintenance,testing,and BPO and infrastructure management.

Infosys always had the reputation of being very picky about acquisitions as many of the target companies could not meet its expectations in terms of operating profit margins. However,in the recent past,it has shed much of its very stringent requirements,focussing more on long-term benefits.

The $350-million acquisition of Lodestone by Infosys in September,2012 saw the company willing to embrace the risks of taking over a consulting-driven company with lower profit margins. This acquisition is expected to bring only long-term benefits spread over the next three to five years. Prior to the Lodestone acquisition,Infosys had made three acquisitions. Its first acquisition was of Australian firm Expert Information Services in 2003. It was folllowed by McCamish Systems in 2009 and Portland Group in 2011. However,all these acquisitions were below $50 million in value.

Infosys M&A strategy would now be a quicker way for the company to get back on market-leading revenue growth,industry observers said. However,the company would also be very careful in buying companies,which would not be very margin-dilutive. Infosys had burnt its fingers in the M&A game by placing its bid for Axon,the UK-based SAP services company. It was in a bitter bidding war with HCL Technologies,which eventually energed the winner.