MUMBAI:Infosys is buying a startup that helps companies manage major changes to their software systems, in the first signature acquisition by Vishal Sikka after he took over as CEO in August last year. Panaya, which has raised $59 million from venture capital investors, including a firm founded by Sikka's mentor and SAP cofounder Hasso Plattner, is being valued at $200 million (Rs 1,200 crore).
"The acquisition of Panaya is a key step in renewing and differentiating our service lines. This will help amplify the potential of our people, freeing us from the drudgery of many repetitive tasks, so we may focus more on the important, strategic challenges faced by our clients," Sikka said in a statement. Shares of Infosys closed 0.6% lower on the National Stock Exchange on a day the benchmark Nifty index ended nearly unchanged.
Infosys plans to bring Panaya's technology, currently centered around enterprise resource planning software management, to other service lines such as its banking software Finacle, application development, and infrastructure management.
"We see great potential in their core technology. It will take us couple of more months to see how we can bring the technology to other areas, and any investment in those processes can be funded from internal cash flows," Sikka said on a conference call with analysts.
He reiterated that Infosys would continue to look at acquisitions to plug holes in its capability offerings. Panaya gets about 12% of its revenue from other system integrators such as IBM, CSC, Logica and HP.
"Working with other system integrators is part of the growth strategy. We plan to be open. Organizationally, we are placing this acquisition under Abdul Razack in our platforms group so that other system integrators and we can work with this company," Sikka said. Panaya CEO Doron Gerstel will continue to lead the company.
Sikka, a former SAP board member credited with the creation of the German software firm's blockbuster database software Hana, is betting on what he calls a 'renew and new' strategy for Infosys, as he tries to balance the twin demands of building revenue momentum while positioning the company to cope with changes brought by technologies such as cloud computing.
Automation push
The Bengaluru-based firm said Panaya's technology would help it bring automation to several service lines through cloud computing, reducing risks, costs and time. The startup, based in the US and Israel, counts Benchmark Capital, Hasso Plattner Ventures, which receives most of its capital from SAP co-founder Hasso Plattner, and Battery Ventures as its main investors.
Panaya's clients include Coca-Cola, Mercedes-Benz, Bosch, Whirlpool, GSK and Siemens, although this deal is less about clients and revenue than it is about intellectual property.
"Acquisitions such as Panaya are important to making the shift from a services-driven to software-driven player. Panaya's strength is utilising hardcore math to solve problems such as upgrades, extensions, testing, etc. The acquisition means Infosys is serious about softwaredriven solutions," said Ray Wang, principal analyst and CEO at Constellation Research.
Over the past few months, the first non-founder CEO of Infosys has been evangelizing what is known as 'Design Thinking', which involves a user-centric problem-solving approach, and embracing automation to reduce costs and improve efficiency.
His aim, he has said, is to restore Infosysas the growth leader after a period of three years in which it lagged the broader IT services industry. Sikka, who took over after founder NR Narayana Murthy unexpectedly cut short his comeback after just a year, has also increased five-fold the size of the company's innovation fund to $500 million, about half of which is ear-marked for India.
Sikka said Panaya deal would give Infosys a foothold in Israel. "Israel is developing as the secondlargest hub for innovation after Silicon Valley and that is something we are excited about," he said.
"Good deal"
This is Infosys' largest acquisition since it bought Lodestone in 2012 for about $350 million. Analysts are cheering the deal as it gives Infosys capabilities that it otherwise would have had to spend a lot of time building. Infosys paid about six-times revenue for Panaya and the deal would be EPS-accretive in 12-18 months, the company said on the conference call. "Prima facie, this is a good deal. The strategic rationale makes sense as this is high technology that could not be built in-house. This will boost employee productivity as well," Sagar Rastogi, analyst at Ambit Capital, told ET.
Infosys and the other IT players are expected to become more acquisitive. Another pointer to this trend was the acquisition late last year by Cognizant of healthcare technology firm TriZetto for $2.7 billion.
"We have never seen IT companies and their merger and acquisition teams so active and we expect more deals in the next two years," Amit Singh, executive director at investment bank Avendus, told ET in an interview last week. Singh added that he sees activity in areas such as automation, software-as-a-service, data analytics and mobility.
Infosys' deal with Panaya is expected to close by March 31. Deutsche Bank advised Infosys on the deal.
"The acquisition of Panaya is a key step in renewing and differentiating our service lines. This will help amplify the potential of our people, freeing us from the drudgery of many repetitive tasks, so we may focus more on the important, strategic challenges faced by our clients," Sikka said in a statement. Shares of Infosys closed 0.6% lower on the National Stock Exchange on a day the benchmark Nifty index ended nearly unchanged.
Infosys plans to bring Panaya's technology, currently centered around enterprise resource planning software management, to other service lines such as its banking software Finacle, application development, and infrastructure management.
"We see great potential in their core technology. It will take us couple of more months to see how we can bring the technology to other areas, and any investment in those processes can be funded from internal cash flows," Sikka said on a conference call with analysts.
He reiterated that Infosys would continue to look at acquisitions to plug holes in its capability offerings. Panaya gets about 12% of its revenue from other system integrators such as IBM, CSC, Logica and HP.
"Working with other system integrators is part of the growth strategy. We plan to be open. Organizationally, we are placing this acquisition under Abdul Razack in our platforms group so that other system integrators and we can work with this company," Sikka said. Panaya CEO Doron Gerstel will continue to lead the company.
Sikka, a former SAP board member credited with the creation of the German software firm's blockbuster database software Hana, is betting on what he calls a 'renew and new' strategy for Infosys, as he tries to balance the twin demands of building revenue momentum while positioning the company to cope with changes brought by technologies such as cloud computing.
Automation push
The Bengaluru-based firm said Panaya's technology would help it bring automation to several service lines through cloud computing, reducing risks, costs and time. The startup, based in the US and Israel, counts Benchmark Capital, Hasso Plattner Ventures, which receives most of its capital from SAP co-founder Hasso Plattner, and Battery Ventures as its main investors.
Panaya's clients include Coca-Cola, Mercedes-Benz, Bosch, Whirlpool, GSK and Siemens, although this deal is less about clients and revenue than it is about intellectual property.
"Acquisitions such as Panaya are important to making the shift from a services-driven to software-driven player. Panaya's strength is utilising hardcore math to solve problems such as upgrades, extensions, testing, etc. The acquisition means Infosys is serious about softwaredriven solutions," said Ray Wang, principal analyst and CEO at Constellation Research.
Over the past few months, the first non-founder CEO of Infosys has been evangelizing what is known as 'Design Thinking', which involves a user-centric problem-solving approach, and embracing automation to reduce costs and improve efficiency.
His aim, he has said, is to restore Infosysas the growth leader after a period of three years in which it lagged the broader IT services industry. Sikka, who took over after founder NR Narayana Murthy unexpectedly cut short his comeback after just a year, has also increased five-fold the size of the company's innovation fund to $500 million, about half of which is ear-marked for India.
Sikka said Panaya deal would give Infosys a foothold in Israel. "Israel is developing as the secondlargest hub for innovation after Silicon Valley and that is something we are excited about," he said.
"Good deal"
This is Infosys' largest acquisition since it bought Lodestone in 2012 for about $350 million. Analysts are cheering the deal as it gives Infosys capabilities that it otherwise would have had to spend a lot of time building. Infosys paid about six-times revenue for Panaya and the deal would be EPS-accretive in 12-18 months, the company said on the conference call. "Prima facie, this is a good deal. The strategic rationale makes sense as this is high technology that could not be built in-house. This will boost employee productivity as well," Sagar Rastogi, analyst at Ambit Capital, told ET.
Infosys and the other IT players are expected to become more acquisitive. Another pointer to this trend was the acquisition late last year by Cognizant of healthcare technology firm TriZetto for $2.7 billion.
"We have never seen IT companies and their merger and acquisition teams so active and we expect more deals in the next two years," Amit Singh, executive director at investment bank Avendus, told ET in an interview last week. Singh added that he sees activity in areas such as automation, software-as-a-service, data analytics and mobility.
Infosys' deal with Panaya is expected to close by March 31. Deutsche Bank advised Infosys on the deal.
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