After all the talk about M&A, Indian IT services provider Infosys Technologies Ltd. (NASDAQ:INFY) has finally bought a company. Although it's not in Japan or Germany like CEO S. Gopalakrishnan has mentioned, the BPO company is in the U.S.
Infosys BPO Ltd., a subsidiary of Infosys Technologies, said on Thursday it's
acquiring Atlanta-based McCamish Systems LLC for $38 million, with up to an additional $20 million if certain financial targets are met. Earnouts are being used more frequently as buyers and sellers try to find
common ground on valuation.
McCamish, covering the insurance industry, has about 260 employees. The deal is a small one for Infosys, which as BusinessWeek
notes, has around $2 billion in cash. Then again, Infosys doesn't have much of a BPO business in the first place, getting less than 1% of revenues from that service. In 2005, the Bangalore company bought a 23% stake in business process management software maker Progeon Ltd. it did not own from Citigroup Inc. (NYSE:C) for $115.1 million, and in 2007, Infosys won a $250 million BPO contract from Royal Philips Electronics NV, while acquiring Philips' services delivery centers in India, Thailand and Poland for $28 million.
It's off to a slow start, but Infosys is looking for more acquisitions. Last month, Infosys said it was looking for companies with revenues of about $400 million in Japan and Germany, and CFO V. Balakrishnan has said the company needs to scale up in healthcare. Healthcare IT is a pretty fragmented space.
There are other big players looking for BPO acquisitions as well in the wake of Xerox Corp. (NYSE:XRX) buying document and BPO company Affiliated Computer Services Inc. (NYSE:ACS) for $6.4 billion in September. Xerox CEO Ursula Burns called the BPO market a fragmented space. As reported by Business Standard, Infosys rival Wipro Technologies is looking for BPO deals -- co-CEO of the IT business, Suresh Vaswani, said, "Acquisitions are part of our strategy. We keep looking at it. The BPO space is likely to be the
next engine of growth for the IT industry." Philippine conglomerate Ayala Corp. is also on the move in the space, spending hundreds of millions of dollars on
BPO acquisitions. Genpact Ltd. (NYSE:G) and HCL Technologies Ltd. are also
looking for BPO deals. However, the companies admit it will be a tough go to get the right price.
Recent deals in the BPO space include IBM Corp.'s (NYSE:IBM) acquisition of Bank of America Corp.'s (NYSE:BAC) Wilshire Credit Corp., including the Wilshire mortgage servicing platform. Sykes Enterprises Inc. (NASDAQ:SYKE) said it's acquiring BPO provider ICT Group Inc. (NASDAQ:ICTG) for $263 million. Exlservice Holdings also wants to expand. In early October, Innovation Group plc, a U.K. BPO and software company, revealed it rejected a bid from ExlService.
IT services in general is a hot deal sector. Here is a
list of potential targets, including some of the potential acquirers mentioned above. -
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