Here are five reasons how this deal affects Infosys.
1) It gives the Infosys management some breathing space from relentless investors, who were concerned with the large pile of unutilized cash on the company’s books. Though the amount Infosys is paying for the deal is roughly one-tenth of the $3.7 billion in cash it held at the end of June quarter, the deal provides hopes that the company will not hesitate to grow inorganically.
2) The acquisition will help Infosys realise its plan to focus more on high-margin software and consulting services and less on labour-intensive outsourcing services. IT services, where competition is the fiercest, accounts for roughly two-thirds of Infosys' business. Infosys wants its software business to contribute as much as one-third of revenues in five or six years, from a few percentage points now, the company's management had told Reuters last week.
3) The Lodestone acquisition will significantly enhance Infosys' presence in continental Europe. That's important because Infosys' share of revenues from Europe, its second biggest market, have been stagnant. Europe accounted for 21.4 per cent of revenues in the June quarter, down from 23.1 per cent of revenues in the March quarter.
4) The acquisition will strengthen Infosys Consulting and Systems Integration (C&SI) capabilities, by bringing more than 850 employees, including 750 experienced SAP consultants to the company. It will also add more than 200 clients across industries to the Infosys pool of over 700 clients.
"A key plank of our Infosys 3.0 strategy is to expand our C&SI. This acquisition fits perfectly into that strategy," Infosys CEO and Managing Director S D Shibulal said.
5) It gives shareholders some reason to cheer after the recent underperformance in share prices. Over the last six months (since March 12, 2012) Infosys shares have fallen 13 per cent against a 2.6 per cent decline in the BSE IT index. Compare that to TCS, whose share prices have gained nearly 15 per cent over the same period.
Infosys has faced investors' apathy because it cut its FY13 dollar revenue guidance at 5 per cent, much lower than industry lobby Nasscom's growth projection of 11-14 per cent.
The stock closed 0.7 per cent higher at Rs 2,512.35 on the NSE.
(With inputs from Thomson Reuters)