Infosys-Lodestone : The Pill for Growth in Consulting and Europe

Foraying itself towards its renewed strategy called Infosys 3.0, the company acquired SAP consulting firm, Lodestone. This is the largest ever acquisition done by Infosys which has been facing media and analyst flak for not showing enough dispatch in using its cash reserves for inorganic growth.

Infosys’ earlier acquisitions include Portland in 2011, McAmish in 2009, Expert Info in 2003 and IQ Financial in 2002. The Infosys-Lodestone acquisition will significantly enhance Infosys’ presence in continental Europe, which also happens to be its second biggest market after USA, with a share of 21.4 percent of revenue. Four years back, Infosys lost its bid to acquire Axon, a leading SAP consulting company. The Lodestone acquisition fills in that gap though it took four years to happen.

Under Infosys 3.0, Infosys CEO Shibulal had prescribed that a third of Infosys’ revenues should each come from consulting and systems integration, products and solutions, and offshore services respectively. This acquisition would enhance its contribution from the consulting and systems integration area.

The acquisition brings in more than 850 employees of Lodestone, including 750 experienced SAP consultants which will prove beneficial to enhance its footprint in newer markets like Brazil, China, Singapore and many more emerging markets. this acquisition will give Infosys access to the Lodestone’s more than 200 clients across industries including manufacturing, automotive and life sciences. This will increase Infosys’ client base from its current 700 to strengthen Infosys’ EMEA and SAP vertical presence.

Lodestone reported robust revenue of 207 million Swiss francs (CHF) for 2011, growing from 181 million Swiss francs (CHF) in 2012. The reported revenue (Lodestone) is just about 3 percent of Infosys revenue at nearly $ 221 M. However, it is expected that the acquisition will deliver revenues of more than $1 B over the next few years.

Thus, the benefits of the said acquisition will only be seen in the long-term and will not address the Infosys near-term woes of slowing growth.

Commenting on the transaction Mr. S. D. Shibulal, CEO & Managing Director, Infosys said, “A key plank of our Infosys 3.0 strategy is to expand our Consulting & Systems Integration business. This acquisition fits perfectly into that strategy. Lodestone and Infosys share a culture of unwavering focus on nurturing and maintaining client trust. I look forward to welcoming Ronald, his experienced leadership team and Lodestone’s team of top-notch consultants to Infosys.”

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