Infosys Ltd. Monday said it will buy privately held Swiss business consulting company Lodestone Holding AG for an enterprise value of 330 million Swiss francs ($350 million), in the Indian outsourcing service provider's largest acquisition so far.
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The deal, which is likely to be closed by the end of October, is part of Infosys's plans to strengthen its high-margin consulting services business at a time when competition is squeezing profits in the technology outsourcing sector.
Last year, the company unveiled a strategy to transform itself into a consulting firm from a technology company.
The key plank of the new strategy is expanding the consulting and systems integration business, Chief Executive S.D. Shibulal said in a statement.
"This acquisition fits perfectly into that strategy," he added.
Lodestone, which advises companies on strategy and business process optimization solutions, has 850 employees and reported a revenue of 207 million Swiss francs in the 2011 calendar year.
It has more than 200 clients, including Germany's BMW AG and drug maker Roche Holding AG, spread across industries such as manufacturing, automotive and life sciences.
Infosys said it will pay cash to Lodestone's owners.
Enterprise valuation usually adds the target company's debt as well as the value of any preferred shares, but excludes its cash and cash equivalents. Infosys didn't provide any details on Lodestone's cash or its obligations.
Consulting accounted for 31% of Infosys's $7 billion revenue in the financial year ended this March 31.Infosys, India's second-largest outsourcing services provider by sales, said the acquisition will strengthen its consulting business in Continental Europe and in emerging markets such as Latin America and the Asia-Pacific.
"We believe this [the Lodestone acquisition] could be a great gamechanger for us in terms of revenue and margin growth," Chief Financial Officer V. Balakrishnan said.
Typically, a dollar of consulting business brings with it $2 to $3 worth of business opportunities in traditional IT outsourcing services, he said.
Infosys has been underperforming sector leader Tata Consultancy Services Ltd. and nearest rival Cognizant Technology Solutions Corp., which have grabbed a greater share of the outsourcing market.
Analysts have blamed Infosys's unwillingness to go in for acquisitions as one of the main reasons for the slower growth. The company, listed on the Nasdaq Stock Market and in India, is sitting on a cash pile of more than $4 billion.
But Mr. Balakrishnan said: "we have a lot of appetite for buying companies which will fit our strategic needs."
Infosys has spoken several times about its intention to acquire companies, saying it will be comfortable with a deal value of up to 10% of its annual revenue. Yet, it has made just three relatively significant acquisitions in its more than 30 years.
The largest was a 2009 deal to buy privately held U.S. insurance solutions provider McCamish Systems for about $58 million.
At the same time, Infosys has been steadily building its consulting business on its own, after it was outbid by smaller local rival HCL Technologies Ltd. in a move to buy U.K.-based enterprise software consulting company Axon Group PLC in 2008.
The Lodestone deal adds credibility to Infosys's intent to build scale in its consulting business, said brokerage IIFL Capital.
"This one small acquisition in consulting could be one big step for Infosys," it said.
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