Infosys loses 44% of its investment in Panaya, may see further erosion

Panaya was the first buy under then CEO Vishal Sikka

Infosys, the country’s second-largest IT services company, on Thursday said the fair value of its subsidiary Panaya at the end of 2017-18 stood at $130 million, a sharp drop of 44 per cent of the investment the company had made in the Israeli automation company.

In a regulatory filing with the Securities and Exchange Commission (SEC), the regulator in the US, the company, basing itself on its negotiations with prospective buyers, said it might see a further erosion in Panaya’s fair value.

Earlier this year, Infosys has put Panaya and another acquisition, Skava, on the block, saying the subsidiaries didn’t align with the company’s long-term goal.

“Based on the progress of the negotiations with prospective buyers subsequent to the balance sheet date, the final sale price of Panaya is expected to be lower than the recorded fair value as of March 31, 2018,” the company said in the US SEC filing.

The company has so far invested in Panaya $230 million, including its acquisition cost and subsequent cash infusion. 

In February 2015, Infosys had acquired Panaya in an all-cash deal of $200 million (about Rs 12.44 billion), the first buy under then Chief Executive Officer (CEO) Vishal Sikka. 

Again in April of the same year, the company acquired Kallidus Inc (operates under the brand name of Skava), a San Francisco-based digital experience solutions company, for $120 million (Rs 7.63 billion).

However, the company in April this year has decided to sell these businesses, and wrote down $90 million (Rs 5.89 billion) in the investment value of Panaya, pending their disposal.

“As of March 31, 2018, the fair value of Panaya was assessed at $130 million as against the acquisition cost including a subsequent infusion of $230 million,” the company said in the filing.

In the quarter ended June 2018, the company again recorded a reduction in the fair value of Panaya by $39 million. 

“In terms of Panaya, there’s an ongoing set of discussions on how we want to act upon the disposal and sale of it (Panaya), keeping in line with accounting guidelines,” Salil Parekh, CEO and managing director, Infosys, had said after the announcement of its earnings last week.

There was a major controversy around the acquisition of Panaya following whistleblower complaints, which prompted co-founder N R Narayana Murthy to raise concerns over lack of transparency in the deals. Subsequently, this snowballed into a full-fledged corporate governance issue, eventually leading to the exit of Sikka.

Investors in the annual general meeting had raised questions over the company's flip-flop over its recent acquisitions. To assuage investors' concerns, Chief Financial Officer MD Ranganath had said, "There would be very detailed diligence in all future acquisitions."

A lose-lose deal

• Infosys acquired Isareli technology firm Panaya for $200 million in an all-cash deal in February 2015 

• Infy had valued Panaya at six times its revenue 

• Panaya was funded by leading PE players like Hasso Plattner Ventures, Battery Ventures, and Israel Growth Partners 

• The company had just 156 employees in Israel; it had over 400 active clients, including GE, Coca Cola and Apple

• Infosys had then said it was bringing a “tremendous piece of technology to the table” with the acquisition

• Facing heat over the deal, Infosys put Panaya on the block earlier this year