Infosys to Buy Consulting Firm Lodestone for $349 Million

Infosys Ltd., India’s second-largest software exporter, agreed to buy Swiss management consulting company Lodestone Holding AG for 330 million Swiss francs ($349 million) to diversify its business.

The Bangalore-based company’s biggest acquisition on record will add more than 750 consultants and 200 customers in industries including manufacturing, automotive and life sciences, Infosys said in a statement today.

The purchase may help Infosys meet its goal of securing a third of its revenue from consulting and systems integration work amid rising competition in outsourcing from Tata Consultancy Services Ltd. and International Business Machines Corp. Infosys will gain access to Lodestone’s customers including Bayerische Motoren Werke AG and Deutsche Telekom AG, according to Chief Financial Officer V. Balakrishnan.

“Consulting is an area of focus for Infosys and other IT companies after they’ve developed their capabilities in traditional IT services,” said Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai. “It’s definitely got higher margins, and a lot of new clients, with minimal overlap. Infosys will be able to scale up its total client base.”

Consulting and systems integration accounted for 30 percent of Infosys’s sales at the end of June. Lodestone will have revenue of 250 million Swiss francs in 2012, Balakrishnan said in a telephone interview.

“About 50 percent of their revenue comes from Switzerland and 23 percent from Germany,” Balakrishnan said. “We want to focus there because these are the economies in Europe which are growing.”

Europe M&A

UBS AG is acting as a financial adviser to Lodestone on the deal, Infosys said in the statement.

“The process attracted a lot of attention from the large Indian IT companies because Lodestone had large Fortune 500 clients and whoever could bring them into the fold could also cross-sell a lot of other business to these companies,” said Ravi Shankar, head of technology investment banking at UBS in Mumbai.

Tata Consultancy and Cognizant Technology Solutions Corp. are among Infosys’s competitors that have said they’re looking for acquisitions in continental Europe.

Infosys rose 0.7 percent to 2,512.35 rupees at the close of trading in Mumbai, the highest level since June 15. India’s benchmark Sensitive Index gained 0.1 percent.

Cash Pile

Infosys had 206 billion rupees ($3.7 billion) in cash and cash equivalents as of June 30, the most among Indian software developers, according to a company statement.

Excluding a $28 million acquisition of three back-office service centers in 2007, Infosys hasn’t completed a deal in Europe after discussing the idea for at least a decade, data compiled by Bloomberg show. In 2008, the company walked away from a plan to acquire U.K.-based Axon Group Plc after its 407.1 million-pound ($651 million) bid was trumped by HCL Technologies Ltd.

After the acquisition of Lodestone, Infosys’s consulting practice focusing on SAP AG’s software will have revenue of more than $1 billion, the company said in a statement. The transaction will close by the end of October, it said.

The deal gives Infosys access to customers in Switzerland, Germany and “surrounding high-growth areas,” and key customers, Shankar said.

The “global reach of Infosys and its leadership in the consulting and technology arena” will add value for clients, Ronald Hafner, chief executive officer at Zurich-based Lodestone, said in the statement.

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