Infosys Technologies is acquiring an America business process outsourcing (BPO) company, McCamish Systems LLC. Infosys will pay $38mn with an additional earn-out of $20mn to acquire the company, which had a turnover of $38.2mn in calendar 2008. The additional consideration will be paid depending on the company achieving certain financial targets. Such arrangements are becoming more common nowadays as it ensures that the acquirer gets companies at more reasonable valuations, which may be lower than the seller’s expectations. But if the seller’s projections about the business come true, then the upside is shared.
Infosys is paying about 1x historical sales but will be lower on the current fiscal’s sales perhaps. The only hitch is that the global financial crisis has affected all firms, including insurance companies. Though nothing has been mentioned by Infosys in its press release, this may have had some impact on McCamish’s performance. It counts the top 20 insurers (in the US) among its clients. Any effect of the global crisis will lessen with time. Infosys will also leverage on its insurance industry business to drive revenues for its BPO operation.
Insurance contributes to 7% of Infosys’ revenues in 2008-09. Infosys has said that it expects the acquisition to allow it to deliver end to end business solutions for the financial services and insurance sectors. “The deal will enable us to bring together a convergence of operations and technology. Infosys BPO has in-depth knowledge of the insurance and financial services sector, and this deal reinforces our leadership position in providing business platform services. Also, this will contribute positively to our strategy of growing non-linear revenue,” said Amitabh Chaudhry, CEO and MD, Infosys BPO in a press statement.
During the quarter ended September 2009, Infosys BPO Limited’s consolidated revenues were flat at $71.3mn compared to the previous corresponding period. But its net income grew by 49% to $16.3mn in the same period. During 2008-09, the BPO business size was $316mn. At last year’s levels, the acquisition would add about 12% to Infosys BPO’s revenues. Its impact on profitability will be known, after the acquisition is completed. The acquisition had no effect on Infosys’ share price, since it is too small compared to the overall size of the company.