Infosys to step on the gas, consider big acquisitions

Displaying Infosys's new-found confidence and aggression under a new management, Chief Operating Officer U B Pravin Rao on Tuesday said the company was ready to make "large acquisitions", adding it was considering a few in strategic areas and regions.

Rao said Infosys was open to acquiring companies with annual revenue of $600-700 million and wasn't averse to bigger acquisitions. "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," he told Business Standard.

As of September 30 this year, Infosys had reserves of Rs 33,616 crore ($5.44 billion) in cash and cash equivalents.

Infosys has long been conservative, as far as inorganic growth is considered. Rao, who claims his leadership style is "optimistic" (not 'cautiously optimistic'), said in the recent past, the company had considered a couple of large acquisition targets but did not proceed due to certain mismatches in terms of the overall strategy and valuation.

Unlike some of its other Indian or offshore-centric information technology (IT) services peers, Infosys is not perceived as aggressive in pursuing mergers & acquisitions (M&As). 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 (Rs 1,930 crore). Two of the 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 Rs 3,300 crore ($753.1 million), though it backed out after peer HCL Technologies bid a higher price.

It was learnt Infosys had 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."

In terms of M&As, Rao said Infosys could have done more captive acquisitions, akin to its peer Tata Consultancy Services, adding failure on this front was why the company had lost out in rapidly growing its core business. "That (captive acquisition) is an area where we have publicly stated we missed the boat."

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.

Under the new management, Infosys had launched the 'murmuration' initiative to crowd-source innovative ideas from employees. Rao said the company had received an overwhelming response to this, adding some of the ideas selected had been put to vote.

On the business environment, the chief operating officer said he believed some of the company's "struggles" were past, adding he was now more "optimistic" about Infosys's growth prospects.