HCL Technologies, the country's fifth largest IT software and services provider, said it has completed its £440 million (around Rs 3,100 crore) cash offer for the UK-based SAP consulting company Axon Group Plc — India's largest overseas acquisition in the IT space. Axon will exist as a separate entity called HCL Axon. The current chief executive officer of Axon Group, Steve Cardell, will be its new chief.
The company expects this new structure to contribute around $600 million (around Rs 2,880 crore) — around 30 per cent of HCL’s revenues. The October-December quarter will reflect 15 days' revenue from the new entity. From 2009, the entire revenue will start getting reflected. Around 1,700 people from Axon’s current SAP practice, including sales and delivery, will join HCL through the reverse merging of HCL’s SAP practice with Axon.
"We started working with Axon only 60 days ago and the funnel size (total contract value) for the combined entity is $1.2 billion (around Rs 5,760 crore). We expect this quarter to be the largest for HCL in terms of the total deal flow," said Vineet Nayar, CEO and member of the Board, HCL Technologies. In FY08, HCL signed $1 billion of contracts, while the last quarter saw a deal flow of $273 million spread across various verticals.
Commenting on the negative trends, Nayyar said, "Currency depreciation of 15-20 per cent will negatively impact the revenue growth by 7-8 per cent. Some customers may see a negative quartero-n-quarter growth. Also, the slowdown may impact the discretionary IT spend."
Nayar emphasised the fact that the non-SAP business was also seeing large deal flow because of the company’s Blue Ocean strategy. In fact, Europe and Australia are making good contribution to the revenues. Currently, Enterprise Application Services (EAS), the sector in which HCL Axon operates, constitutes 11 per cent of HCL’s revenue. The combination of the two will create a business accounting for 25 per cent of HCL’s revenues.
On November 25, Axon approved the scheme of arrangement to implement its acquisition by HCL EAS, an indirect wholly-owned subsidiary of HCL Technologies. HCL got 99.9 per cent votes in its favour and the company acquired 34.7 million shares of the British firm. In October, HCL acquired almost 10.43 per cent of Axon’s shares at less than 650 pence a share. "We made some strategic moves like acquiring Axon’s shares at less than the quoted price," said Nayar.
HCL had purchased 6.71 million shares of Axon from the open market on October 12, representing 10.43 per cent of the British company's total paid-up capital. On October 10, with the consent of the UK’s Takeover Panel and Axon, HCL decided to implement the offer by way of a ‘scheme of arrangement’.
On October 8, HCL EAS acquired 3,01,623 Axon shares, which represented about 0.47 per cent of the current issued share capital of Axon. DSP Merrill Lynch is the financial advisor for HCL EAS and HCL Technologies.
