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Infy to make fourth acquisition in 30 yrs

* IT major’s buyout of Swiss firm Lodestone for $350 million to help penetrate tough European market

Written by ENS Economic Bureau | Bangalore | Published: September 11, 2012 1:56:31 am

IT major Infosys Technologies has taken a “small,but significant step” in addressing its revenue growth issues on Monday by spending 330 million Swiss francs ($350 million) from its $4 billion cash pile for an acquisition,a rare development in this conservative company.

Infosys announced the acquisition of Lodestone Holding AG,a European management consultancy firm with an expected revenue of $ 250 million in the current year primarily from its business in the Swiss and German markets where it has automotive major BMW and pharma major Roche among its clients.

The acquisition is expected to bolster Infosys IT consulting business and increase its footprint in the European market,which the company has found hard to crack.

Lodestone has been valued at 1.3 times its revenue for 2012. The acquisition is among a total of four done by Infosys in its over 30-year history.

“This deal is at the intersection of two of our strategies — consulting and system integration,and continental Europe. Lodestone is a leading management consulting firm focused on many verticals — predominantly automotive,consumer products and life sciences,’’ Infosys chairman S D Shibulal said while announcing the acquisition on Monday.

With the deal set to be closed in October this year Infosys will also be acquiring 850 Lodestone staff including 750 leading management consultants. “The acquisition will create a platform for over 10,000 consultants and $1 billion revenue from SAP-led business for Infosys,” Shibulal said.

“This is a great acquisition in the consulting space. The revenues of this company is around 400 million Swiss francs but in a consulting business you also get a lot of flow through IT business. For every one dollar from consulting you get,flow through two to three dollars in traditional IT services. So this could generate greater revenue in the near future,’’ said Infosys CFO V Balakrishnan,who called the acquisition “a small step for Infosys but a giant leap for the IT industry”.

Founded in 2005,Lodestone has had an 18 per cent CAGR over the last few years.

Lodestone will function as a European subsidiary of Infosys when acquired and will be headed by BG Srinivas.

“This is an exciting moment for us. It is actually the culmination of a journey that started more than a year ago when we looked at our future and strategy and clearly came to the realisation that without a very powerful partner we would face a very difficult future in a few years time,” said Ronald Hafner,chairman and CEO,Lodestone.

Infosys officials said the acquisition was part of ‘Infosys 3.0’ strategy that the company has set in motion to overcome challenges of scalability in the Indian IT industry. “The company can no longer be talked of as being conservative,” an official said.

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