Infosys’ largest deal is still small

Contact: Thejeswi Venkatesh

Last October, Infosys Technologies CEO Kris Gopalakrishnan indicated that the firm was ready to make big acquisitions, contrasting the conservative company’s historical growth strategy. The Indian IT outsourcing giant walked that talk today with the announcement of its largest-ever acquisition – the $350m pickup of Swiss SAP systems integrator Lodestone Holding.

The purchase comes four years after Infosys was outbid by HCL Technologies in its attempt to acquire Lodestone rival Axon Group and helps the company shore up its higher-margin consulting business while also increasing its presence in Europe. Infosys’ consulting and systems integration segment already accounts for about 30% of its revenue.

The deal values Lodestone at 1.6 times last year’s sales, identical to the valuation Axon took in its roughly $800m sale to HCL in 2008. On its website, Lodestone reported revenue of $220m for 2011, up from $192m in 2010. UBS advised Lodestone.

We’d note, however, that although this is Infosys’ largest acquisition, it’s still a fairly conservative play. The Lodestone deal was done for nearly half of what Infosys was willing to shell out for Axon in 2008, and its revenue is only 3% of Infosys’ total.