For over two decades, Infosys was considered as the bellweather for the Indian Information Technology sector and the company, despite being considerably smaller than the market leader TCS, always commanded a higher premium in the stock market. The top management at Infosys had gotten used to almost never feeling the pressure, of stakeholders or the press. So clearly the last 18 months have been anything but business as usual for the Infosys Chief Executive Officer, S D Shibulal. The company has been forced to take a series of measures to keep costs under control, including foregoing business class travel and also delaying the joining dates of almost 17,000 new employees. The stock markets have been harsh with the company that for years used to be its bluest blue stock. However, it has been pounded and is now down almost 22 percent from the highest it touched in the last 52 weeks. Not only has the price of Infosys stock dropped, but each warning issued by the company also creates ripples for other companies around the world, whose stocks fall on any bad news coming from Infosys. One clear example is CapGemini whose stock had a stormy session the day Infosys announced its not so encouraging results.
The going must be tough right now, but the signs are that finally things are beginning to look up once again at Infosys. The company, sitting on a cash stash of over $3 bn, finally decided to move ahead with acquisitions in order to boost its presence in the key European markets. So, it bought Lodestone, a Zurich-based management consultancy firm for about $350 mn. This buyout was followed, a few days later, by another acquisition in the United States, this time through its BPO subsidiary. The buys make sense in two ways. One, it will give Infosys a nice headstart in management consultancy business, principally over its Indian competition and in the key segment of SAP. Lodestone has 750 SAP consultants and over 200 clients in varied domains like manufacturing, automobile and life sciences. It also will give Infosys new access in Switzerland and Germany, two European nations least impacted by the severe economic crisis that has gripped rest of Europe.
The acquisition fits very well with the direction that Infosys has clearly earmarked for its future growth, and this has also given a push to other Indian IT giants. No longer keen to be seen as the sweatshops for IT and outsourcing, most Indian IT companies, including have been looking for opportunities to move higher up the value chain, with a target to be in the same category as other global giants – IBM, HP, CapGemini etc. Though the Big 3 of Indian IT – TCS, Infosys and Wipro – have publicly been on the look out for acquisitions, especially in the European market, they have little to show so far. There have been a lot of rumours and some deals that were almost clinched, but none that matters as much as Lodestone has materialised.
With Infosys having bitten the bullet, one can be certain that the other Indian IT leaders, beyond Wipro and TCS, will be closely scouting for some cherry picking opportunity. These acquisitions, which bring immediate gains of an entirely local personnel and fairly indepth market awareness and the more long-term gains in terms of climbing the value chain.