Infosys eying major acquisitions, growth through innovation

Armed with a new-found confidence under its new CEO Vishal Sikka and a huge cash pile of over $5 billion, Infosys is attempting to move quickly up the technology value chain and build an enterprise based on intellectual property - both through own innovation and acquired technology.

For this, the technology bellwether plans to raise the level of the programmes it offers, including at its sprawling training campus in Mysore, besides deepening partnerships with academic institutes globally through sponsored research programmes.

As part of Vishal Sikka's strategy of technology upgradation, Infosys has also entered into an agreement with the University of Berlin to create an R&D centre focused on emerging technologies besides setting up a $2-million fund along with Princeton University to enable up to two scholars to pursue research at the school's Institute of Advanced Study.

Infosys, which is sitting on reserves of Rs33,616 crore (5.44 billion) in cash and other liquid assets, as of 30 September this year, is looking for "large acquisitions", including in a few in strategic areas and regions, its chief operating officer U B Pravin Rao said on Tuesday.

Infosys, he said, was looking at companies with an annual revenue of $600-700 million and even bigger ones. "There is no constraint (on how much the company will pay for acquisitions). At the end of the day, if it is in line with our strategy, if we think it will add value to our strategy and give us time-to-market advantage, we are pretty confident we want to do it," the Business Standard quoted him as saying.

Infosys has so far been conservative as far as inorganic growth is concerned. That seems to have changed now. But, still, unlike most other companies, Infosys is more cautious of possible mismatches and in terms of the overall strategy and valuation.

Since its inception, it has carried out only five acquisitions, the largest being Lodestone, a Switzerland-based management consultancy firm Infosys had acquired in September 2012 for about $345 million (Rs1,930 crore). The other two acquisitions - McCamish ($58 million) and Portland Group (A$34 million) - were in business process outsourcing.

In 2008, Infosys had offered to buy UK-based SAP consulting company Axon Group for about Rs3,300 crore ($753.1 million), though it backed out after peer HCL Technologies bid a higher price.

Infosys is reported to have also shown interest in acquiring TriZetto, a US-based health care IT solutions firm that was eventually acquired by Cognizant for a whopping $2.7 billion.

"We take risks but finally, we can't be foolhardy. If you look at Axon, it made better sense for HCL than us at that stage. We wanted it but there was a limit on how much we wanted to pay. So beyond that, it did not make any sense for us. It was because we already had a dominant SAP practice; we still have the dominance today," Rao said.

He added Infosys was eyeing large acquisitions in areas such as health care and the government business space in the US, where it already had a subsidiary, Infosys Public Services.

In terms of locations, the company is looking at the Nordic countries and Japan. Rao said the company was also looking at smaller acquisitions to acquire capabilities in new technologies such as automation, analytics and big data. "Probably, these will be smaller (acquisitions) because I don't think there are many large companies in these spaces."

Rao said the new strategy unveiled by chief executive Vishal Sikka earlier this month had gone down well with clients, as well as employees. He said while from one perspective, the new strategy remains was almost the same as Infosys 3.0, the company was focusing more on execution. "We are quite clear there will be equal focus on the core business (application, development and maintenance, which the company often dubs the 'bread and butter' business), as well as new areas such as design-thinking, platform-centric services and automation."

He added while the company's attrition rate continued to be high, there was a drop in attrition numbers every month.

Infosys under Vishal Sikka continues to attract talent from SAP as he builds a team of leaders to help transform Infosys into what the first non-founder chief executive officer calls a "next generation IT services company."

Besides, Infosys has given promotions to 4,000 employees in October, as the company continues with its efforts to retain key staff and improve employee morale. With this, it has promoted about 12 per cent of its 1,65,000 employees since the current financial year began in April.