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Infosys Buys Panaya For $200 Million

February 18, 2015 | About:

Infosys Technologies Limited (NYSE:INFY), the Indian outsourcing company, has made plans to acquire Panaya, an American Software as a service (SaaS) company for a whopping $200 million. The deal is expected to be complete by March 31, 2015. Deutsche Bank AG (NYSE:DB) has advised Infosys on the acquisition deal. Sudin Apte, the CEO and research director at Hercules Offshore, Inc. (HERO), said that this acquisition will use automation so as to increase revenue of Infosys without actually employing more staff. The acquisition will be an all-cash deal. The deal is a part of Infosys' "Renew and New" strategy. This will help in enhancing their competitive position and will increase productivity of their current services by means of leveraging innovation, artificial intelligence as well as automation.

Infosys Ltd., established in 1981 is an IT service company and is a NYSE listed company. The company started off with just $250 capital and has now grown to $ 8.64 billion (LTM Q3 FY15 revenues). The market capitalization is 2.62T approximately. The company was the first Indian IT company to be listed on NASDAQ. Infosys is now acquiring Panaya, the company providing Cloud-based quality management services. The company also deals in collaborative test management, ALM acceleration automated code remediation and Change impact analysis, to name a few. Founded in 2005, Panaya has its headquarters in Menlo Park, California.

The acquisition is Infosys's second major acquisition after Lodestone, a Zurich-based consulting firm. The acquisition was through in September 2012 and was a $350 million deal. In 2012, Infosys also acquired Australia-based BPO Portland Group for $41 million. Infosys has an added advantage due to Panaya's CloudQuality suite. It will enhance the automation process via the SaaS model. It will also help in the reduction of costs, mitigate risk and will shorten time to market for clients. This is a huge plus point given that 1220 companies from around the world use Panaya CloudQuality suite to enhance enterprise apps.

The CEO/MD speaks

Dr. Vishal Sikka, CEO and MD of Infosys said that the acquisition of Panaya will help them in renewing as well as differentiating their service lines. Repetitive tasks won't have to be done anymore. Hence, the main focus would now be on strategic and important challenges faced by clients. Dr. Sikka also said that the technology of Panaya will help Infosys to simplify complexities faced and will manage enterprise application landscapes very well. The deal would give Infosys a hold in Israel. Since the country is developing as a hub for innovation, Infosys now stands a huge opportunity.

Doron Gerstel, the CEO of Panaya said that they are excited about leveraging Infosys' huge customer base, service as well as the global reach. It will ultimately help them to deliver simplifying and more compelling vale to their clients. He was also confident that the acquisition will now position Infosys to be the service leader in the market of enterprise application services. Panaya's clientele includes brands like Coca-Cola (NYSE:KO), Whirlpool Corporation (NYSE:WHR), etc. However, this deal is not about clients but is more focused on intellectual property. Principal analyst and CEO of Constellation Research (NYSE:STZ) Ray Wang said that this acquisition shows that Infosys is very serious about software-driven solutions. Hence there is a shift from a services-driven to software-driven player.

Sikka also said that the main reason for the acquisition was due to the great potential that they saw in core technology. A few more months and the technology can be applied in many other areas as well. Investment in these processes will mostly be funded from the internal cash flows. This acquisition is being placed under Abdul Razack in their platforms group. Other IT players in the market will now look to acquire companies so as to remain stiff in competition to Infosys. Amit Singh, executive director at Avendus said that more deals can be expected in the next two years. The IT industry has already been revolutionized. Let's see what dynamic changes can still be brought!

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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