HCL Tech merges with Axon Group

New Delhi: HCL Technologies announced the completion of the £440-million buyout of UK-based Axon Group. HCL has now merged Axon with its own SAP practice, and named the merged division HCL Axon. The division has 4,500 consultants, with Mr Steve Cardell as its President.

“This is a great transformation transaction for HCL. For the last 60 days, the two teams have been working together and we are now pursuing deals to the tune of $1.2 billion,” Mr Vineet Nayar, CEO of HCL Technologies, told newspersons.

The acquisition at £440 million ($658 million, a lower-than-expected price helped by currency movements) is the largest acquisition in the history of the Indian IT industry, surpassing Wipro’s $600-million acquisition of Infocrossing in 2007.

Mr Nayar said that while the size of the SAP market was pegged at about $23 billion per annum, the Indian IT companies had only cornered $1.5 billion.

“This speaks volumes about the size of the market opportunity. But capability gap prevents vendors from addressing the full opportunity. Axon represents that right capability for us. It is the right stepping stone to respond to the economic slowdown…Together, we can provide seamless end-to-end services,” he said.

Enterprise application services, including package implementation and associated consulting services, command higher billing rates compared to traditional application development and maintenance services. This service contributes 11 per cent of HCL Tech’s revenues. The acquisition would enable HCL to shore up the proportion to 25 per cent of its revenue.

The Delhi-based HCL Tech has already £tied-up 400 million loan from Standard Chartered, to part fund the proposed deal. The rest would come from the cash on its balance sheet - $560 million when it announced its plans to buy-out Axon.

According to Mr Cardell, “As HCL AXON, we will be combining Axon’s strong business benefit-led consulting and implementation capabilities with HCL’s strong global delivery-based application and infrastructure management capabilities. We are confident of being able to leapfrog competition in delivering value on an end-to-end basis for customers who have chosen SAP as their strategic technology platform and whose business challenge is transformation.”

It may be recalled that Infosys, which first made a bid for buyout of Axon late August, had put a £407 million or 600 pence a share offer on the table. However, HCL Technologies trumped that bid with its own offer of 650 pence per share.

Axon reported profit before tax of £29.5 million on revenue of £204.5 million for the year ended December 2007. Axon counts the likes of BP, Buckinghamshire County Council, Cable and Wireless, Kraft Foods and Xerox among its clients.