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Infosys to acquire Axon as Indian IT services companies expand in Europe

Alexander Simkin | Sept. 1, 2008
The buy-out marks the beginning of a long-anticipated take-over of the European IT services sector by Indian players.

Indian S/ITS vendors have traditionally been reluctant to grow by acquisition, preferring instead to do so organically. Infosys in particular has been wary of M&A. Its acquisition of Axon is therefore especially significant. Other SWITCH players will take note. The acquisition of Axon by Infosys marks a shift in the acquisition strategy of Indian vendors in Europe. Other SWITCH companies, not wanting to be left down the value chain and with reduced market share, will also buy European vendors in the £400 million to £1 billion size range.

By buying European companies, Indian vendors will obviate the challenge of recruiting quality, experienced staff in both India and Europe. However, Indian acquirers, more than their Western counterparts, face the challenge of integrating divergent organisational cultures within their new business. The Infosys acquisition will be a good test case of cultural integration.

We expect to see further convergence between on- and offshore providers in the European S/ITS market with several acquisitions of mid-size European vendors by Indian competitors over the next year to 18 months. Acquisitions of larger European S/ITS vendors in the £1-6 billion bracket, while possible, are less likely. Indian vendors lack the necessary cash line. Even if they can find the capital, the scale, complexity and disruption of the integration would make any of them reticent to act.

Alexander Simkin is an Ovum analyst based in London.

 

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