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Business deals

Infosys acquires US software provider in digital business push

India's second-largest software exporter buys Simplus in $250m deal

An employee walks past a signage board in the Infosys campus in Bangalore, India.   © Reuters

MUMBAI (NewsRise) -- Infosys's acquisition of U.S. cloud consulting software provider Simplus underscores the Indian software exporter's push to expand digital business as clients curtail spending on traditional technology outsourcing.

The Bengaluru-based company agreed to buy Simplus for $250 million, including $50 million in earn out payments, it said in a statement last evening. Simplus specializes in the so-called Salesforce business software implementation on the cloud.

In 2018, Infosys had acquired a Finnish company called Fluido in a 64 million-euro ($70 million) deal for Salesforce implementation on the cloud. Indian software exporters are fast shifting to new internet-based technologies such as cloud computing and artificial intelligence from low-margin, rudimentary services such as managing the IT infrastructure and back offices of western clients.

"Service providers globally have been active in Salesforce competency acquisitions," Kotak Institutional Equities in a note. Infosys' move is consistent with its focus on accelerating digital shift, the brokerage said.

Global consulting major Accenture draws nearly two-thirds of its revenue from new digital technologies, a feat it achieved by spending billions of dollars on acquisition of niche technology companies.

Indian software companies continue to earn a disproportionately large amount of revenue from stock IT services such as application development and business process outsourcing to drive growth. Digital technologies barely accounted for a third of the industry's revenue.

"The acquisition reaffirms our continuous endeavor to strengthen our strategy of scaling our cloud-first digital transformation capabilities," said Infosys Chief Operating Officer Pravin Rao. "This acquisition is key to staying relevant to the digital priorities of our clients."

Such acquisitions are earnings dilutive initially, but make up later through participation in high growth opportunities, Kotak said.

Last week, Nasdaq-listed Cognizant Technology Solutions, which has about three-fourths of its employees based in India, said it is in negotiations to buy the French operations of El Technologies, a Paris-based digital firm that specializes in Salesforce implementation in France.

According to brokerage Nirmal Bang, India's IT companies have been unable to tap into the marketing budgets of customers in a material way, as they continued to focus on technology-intensive back-end of digital, "where we believe the field is relatively more crowded."

The front-office capabilities in digital still largely elude Indian IT services players, it said in a report published in December.

Infosys's acquisition comes at a time when the Indian company is barely recovering from a management turmoil triggered by whistleblower allegations of financial irregularities. Last month, Infosys said its audit panel, along with external investigation agencies, found no evidence of "financial impropriety." The company continues to face probe from the capital markets regulator and the U.S. Securities and Exchange Commission.

Shares of Infosys gained 0.3% in Mumbai trading on Tuesday, while the benchmark S&P BSE Sensex added 0.6%.

--Dhanya Ann Thoppil

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