Despite Panaya shadow, Infosys is poised for a major inorganic play

CEO Salil Parekh says firm has shortlisted 20 possible acquisitions

Undeterred by controversies surrounding the acquisition of Panaya and its subsequent decision to sell the Israeli automation firm it had bought in 2015, Infosys, India’s second-largest information technology services firm, is poised for a major inorganic play.

The Bengaluru-based company has shortlisted around 20 acquisition targets and will look at closing a few of those after evaluation over 12 to 24 months, Salil Parekh, chief executive officer (CEO) and managing director of Infosys, told Business Standard in an exclusive interview.

The company is ramping up its organic engines to expand its digital capabilities in countries outside North America, including the UK and Australia, he added.

“We have done two-three acquisitions in the last few months. Our mergers and acquisitions team is now looking at a shortlist of 15-20 companies, and is evaluating them. So I don’t see it (Panaya issue) constraining us,” said Parekh, a former Capgemini leader, who has been at the helm of Infosys since January. 

“We have a clear idea of where we want to grow…, and if we see something fit into that requirement and we can explain it to ourselves, the board and the market, those will be done.”

After joining the company, Parekh made his intention clear by announcing two acquisitions and one joint venture (JV). In April, the company, while deciding to sell Panaya and Skava, two major acquisitions made by former CEO Vishal Sikka, had announced acquiring US-based digital and creative agency Wongdoody for $75 million. 

Last week it announced signing an agreement to acquire Finland-based Salesforce advisory firm Fluido for around $76 million (€65 million) to expand in the Scandinavian region. 

Earlier this month, Infosys had announced setting up a JV with Singapore’s state fund Temasek to expand its footprint in Southeast Asia. 

“There’s a huge appetite today for cloud-based companies, companies that are into software as a service (SaaS), data analytics, user experience, cybersecurity, and Internet of Things. 

So, we are looking at these areas, and if there is a cultural fit and the value makes sense, we should be able to do those acquisitions,” said Parekh.

“In the next 12-24 months if we are not able to do things (execute in accordance with strategy), we’ll decide, but so far it (pursuing an active organic strategy) does not seem to be a constraint,” he added.

Even though Infosys is not known for its aggressive acquisition strategy, the company was into a major inorganic play under Sikka. The acquisition of Panaya landed the company in a major controversy following whistleblower complaints, which prompted co-founder N R Narayana Murthy to raise concerns over lack of transparency in the deal. Subsequently, this blew up into a full-fledged corporate governance issue, leading to the exit of Sikka and also the then chairman, R Seshasayee. 

While Panaya and Skava have been put on the block, the Israeli automation firm has lost more than 44 per cent of its value, including the acquisition cost of $200 million and infusion of $30 million into it.

Parekh said allegations about compromising on corporate governance standards were becoming things of the past, with the company returning to a stable phase under the chairmanship of co-founder Nandan Nilekani. 

At the end of March 2018, Infosys had a cash reserve of around Rs 200 billion.