Infosys is to acquire U.K. headquarted SAP services company Axon Group for £407.1m. The transaction is expected to be finalized in November 2008.
Axon is a major SAP consultancy founded in 1994. In its early years Axon's target market was large companies with a U.K. head office: early clients included BP, Centrica and Xerox.
A major focus in recent years has been the expansion of its international business. Two early acquisitions were Xansa MBOs:
- In 2004 an MBO from Xansa SE Asia (Axon exited the Middle East in 2006)
- In 2005 the Feanix Corporation, an MBO of Xansa's U.S. SAP practice.
In the U.S. other niche acquisitions of SAP IT services companies have included utilities sector specialist TUI Consulting in January 2006, Premier HR Solutions Inc. in November 2006 and Zytalis Inc, a specialist in the high-tech sector, in December 2006, and EnterSys Group in March 2008. These acquisitions have given Axon capabilities in the U.S. in the energy, utilities, aerospace & defence, and transportation sectors.
In H1 2008 the Americas contributed 42% of global revenues.
Axon has also been acquiring niche SAP consultancies in other geographies, including most recently in Australia. The company has also established a presence in China.
Axon's international strategy has also included partnership: creating in 2006 Axon International, a JV with Itelligence AG in Germany and Acando in the Nordics. Members of "Axon International" co-operate on opportunities in geographies outside their own reach. A recent addition to the network was GFI Informatique, meaning that Axon International can now provide SAP services coverage across all the major European markets
In the U.K. Axon has made major inroads into the local government sector, initially as a sub-contractor to Capita in Birmingham, and most recently in Wolverhampton City Council, who in March awarded Axon its largest ever contract as prime contractor in a 10-year transformation program.
Axon has experienced strong top-line growth in the last five years, from £50m revenues in 2003 to over £200m in 2007, and £124m in H1 2008 (projected full year revenues in the region of £245m). Global headcount is now c. 1,900.
IKON has been struggling with declining revenues for the last decade (from $5.5Bn in FY 1998 to $4.17Bn in FY 2007). While there have been some improvements in operating margin since FY 2005, it was just 4.9% in FY 2007.
The board has conducted a formal review of strategic alternatives for the company, and clearly found no better alternative than this offer, which represents a 33% premium over IKON's trailing 60-day average stock price as of market close on August 26th.
The only area of top-line growth for IKON in recent years has been its Managed & Professional Services (MPS) business, which accounts for c. 20% of overall revenues. The M&PS portfolio consists of the following offerings (with FY 2007 revenue share):
FY 2008 nine month year-to-date revenues for M&PS were $628m; full year revenues are likely to be close to $850m. Over 90% of revenues are derived from the U.S.
This acquisition will significantly enhance Ricoh's capabilities in document management services and improve its positioning against other hardware vendors such as Xerox and Oce who have been developing substantial document management BPO capabilities.
Challenges for IKON in developing the M&PS business will include:
The fact that Ricoh has a longstanding relationship with IKON as an equipment supplier should assist in the integration process.