HCL Completes Acquisition of Axon

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Indian outsourcer HCL Technologies has completed its £441 million (US$658 million) cash offer for Axon Group, an SAP consulting company in the U.K. and Axon will be delisted from the London Stock Exchange Tuesday.

The merger will allow HCL to address the about $23 billion market per year for SAP services, said Vineet Nayar, CEO of HCL in a conference call Monday. The revenue earned by Indian outsourcers from the SAP services market was only about $1.5 billion in a year, because they did not have the consulting capabilities to help customers transform their businesses, he added.

As a result of the skills brought by the Axon team, the new combined entity, HCL Axon, will pursue business of about $1.2 billion, Nayar said. HCL did not, however, disclose how much it expects Axon business to add to its annual revenue.

HCL Axon will have 4,500 SAP consultants, with 1,700 of them from HCL, Nayar said.

Axon shot into prominence in August when Infosys Technologies, India's second largest outsourcer, announced that it had made a cash offer to acquire Axon in a deal valued at £407.1 million.

HCL outbid Infosys in September when it announced that it had made a cash offer for Axon that valued its entire issued and to-be-issued share capital at £441.1 million.

HCL funded the transaction in U.S. dollars, Nayar said. As a result of the appreciation of the dollar against the U.K. pound, HCL paid $658 million on closure of the deal, which was far lower than the estimated $800 million it looked like it would pay in September, he added.

The move by HCL reflects a trend for IT services companies to merge to aim to become full-service providers, said Siddharth Pai, a partner at outsourcing consultancy firm, Technology Partners International (TPI).

The deal combines Axon's expertise in business consulting with HCL's other services for the SAP market delivered at a lower cost from India, Pai added.

Axon's skills complement HCL's capabilities in the areas of application maintenance and infrastructure management, said Ram Krishna, corporate vice president and head of enterprise application services at HCL.

The deal will help HCL grow its business in Europe, Pai said. Indian outsourcers are expanding in Europe to reduce their dependence on the U.S., their largest market.

The purchase of Axon will not, however, significantly change the IT services outsourcing landscape, Pai said.

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