Corp Buzz: Infosys to Buy UK based Axon group

 

infosys-logo    Business Standard and Economic times have reported that Infosys is all set to buy UK based Axon group for $753 Million. The deal is to be completed by November 2008. The UK based Axon Group is into consultancy services to multinational organizations that have chosen SAP as their strategic enterprise platform.

Axon Group has 2000 employees. The Q1 revenue for Axon was 204.5 mn pounds in 2007. The profit after tax for the same period was 20.2 mn pounds. According to sources in Infosys, transfer of ownership will be completed by November.

Kris Gopalkrishnan, CEO of Infosys said, “This strategic combination of our groups will accelerate the realization of our common aspiration - that of becoming the most respected provider of business transformational services in the global marketplace”.

The Axon Group Web site carry the following statement in its latest news section

On 25 August 2008, the boards of Axon and Infosys Technologies Limited ("Infosys") announced that agreement had been reached on the terms of a recommended cash offer to be made by Infosys for the entire issued and to be issued ordinary share capital of Axon (the "Offer"). The Offer, which is expected to be implemented by way of a scheme of arrangement, values Axon’s existing issued and to be issued (fully diluted) share capital at approximately £407 million (US$800 million) on a cum-dividend basis.

The Shares of Axon are currently trading at 502 pounds, up by 2% against yesterday's close.

About Axon Group

Axon is a business transformation consultancy that designs, implements and supports solutions that address complex business issues faced by large organizations who have selected SAP as their strategic enterprise platform. The company provides services in the field of Business Consultancy, Solution Implementation and Application Management.

The company has recently signed a joint venture with Pratt & Whitney to establish a world-class SAP services centre in Puerto Rico. Axon also executed few acquisitions recently. It's subsidiary Axon Solutions Inc. has acquired the business of EnterSys Group L.P., a leading provider of SAP consulting services to the oil, gas & chemical sector in North America. It has also acquired the business of SCM Solutions L.P. ('SCM'), a provider of specialist supply chain SAP consulting services in North America.

Axon's Financials

As per the latest Annual Report available for the year endind December31st,2007.

  • Turnover* up 49% to £204.5m (2006: £137.5m):
    • US generated revenues of  £74m, 36% of the group, up from 23% in 2006
    • The proportion of revenues generated by our top 10 clients reduced to 67% (2006: 74%)

 

  • Strong profit performance with adjusted operating profit** up 65% to £36.5m (2006: £22.1m)
    • Operating profit up 69% to £30.6m (2006: £18.1m)*
    • Profit before tax* up 67% to £29.5m (2006: £17.7m)
    • Adjusted profit before tax** up 63% to £35.5m (2006: £21.8m)

 

  • Successful integration of acquisitions:
    • Two US acquisitions made in Q4 2006 were fully integrated in 2007 and now trade under the Axon name
    • The acquisition of JSPC, an SAP listed firm trading in Malaysia and China has now been fully integrated into Axon’s existing Malaysian off-shore centre

 

  • Diluted earnings per share up 56% to 31.7p (2006: 20.3p)

 

  • Proposed final dividend of 2.5p (2006 2.25p) making a total dividend per share for the year of 4.5p (2006: 4.0p)

 

Investment guru is of the view that the merger of Axon group with Infosys would help it tap the North America and UK markets where Axon was doing exceedingly well as well as strengthen its position in the Business Consultancy services. The deal at around 20 times the earnings of Axon is surely not an attractive deal as far as price is concerned but the long term benefits in terms of market share and access to Axon clients would be significant. Since it is a small ticket acquisition, the share price of Infosys would remain more or less range-bound.

3 comments:

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utkarsh said...

Hi Rajesh
Does this acquisition puts infosys as a better investment opportunity as compared to other tech stock ? What is your one year target price for infosys ?

Regards,
Utkarsh

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