Infosys to buy Lodestone for $349 million

Reuters News
Posted: Sep 10, 2012 6:33 AM
Infosys to buy Lodestone for $349 million

By Harichandan Arakali

BANGALORE (Reuters) - Infosys Ltd has agreed to buy Lodestone Holding AG in a deal valued at 330 million Swiss francs ($349.58 million), as India's No. 2 software services exporter strives to boost income from higher value services and accelerate growth.

The acquisition of Lodestone, a Zurich-based management consultancy firm that advises clients on strategy and on business management software from SAP, will add more than 200 clients to Infosys' 711 customers at the end of June.

Investors have criticized Infosys for its aversion to acquisitions despite holding nearly $4 billion in cash, and its inability to make progress in consulting to compete with rivals IBM and Accenture.

The $7 billion company, which symbolizes India's rise as an outsourcing powerhouse, has struggled this year. It has missed its sales targets, lost market share to local rivals, put off an annual pay rise and seen its stock battered.

Infosys Chief Executive S.D. Shibulal said the acquisition was part of the company's new strategy, under which it will focus more on higher-margin software and consulting and less on basic outsourcing services.

The acquisition will also boost Infosys' presence in Europe, its second-largest market after the United States, he said.

Infosys plans to conclude the all-cash deal by October, the Bangalore-based company said, adding it was not changing its annual revenue guidance for the current fiscal year to March 2013 as a result of the acquisition.

Shares in Infosys, which the market values at $25.5 billion, rose as much as 1.2 percent during the day. It was trading up 0.2 percent at 0459 EDT. Some analysts said that the immediate financial impact of the acquisition was likely to be limited.


The deal values Lodestone, whose top clients include German carmaker BMW and drugmaker Roche Holding AG, at 1.3 times its revenue of 250 million Swiss francs expected in 2012, Infosys Chief Financial Officer V. Balakrishnan said.

Excluding the Lodestone deal, the total value of Infosys' completed M&A transactions is about $398 million, compared to more than $1 billion for bigger rival Tata Consultancy Services, according to Thomson Reuters data.

In 2008, Infosys announced a $700 million-plus bid for British consulting firm Axon, but dropped out of the race after smaller domestic rival HCL Technologies made a higher offer.

"We have lot of appetite for buying companies which will fit our strategic needs," CFO Balakrishnan said. "It's not just acquisition, internally there are a lot of steps that we will take to achieve high-quality revenue growth in the near future."

UBS advised Lodestone on the deal.

(Writing by Sumeet Chatterjee; Editing by Daniel Magnowski)