Acquisition of Axon by HCL Technologies Limited
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Case Code: BSTR321 Case Length: 17 Pages Period: 2008 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: HCL Technologies Limited, AXON Group Plc. Industry: Information Technology Countries: India/UK Themes: Mergers & Acquitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
"For the next three to four years SAP will be a hot property in terms of application implementation. Reasons being, firms are ramping up their SAP applications and are looking at it as a business transformation tool."
- Sudin Apte, Senior Analyst, Forrester Research (India Operations), in December 2008.
"It is an expensive deal. The ERP environment has deteriorated, making the situation even worse. The deal won't improve HCL's bottomline next year."
- Anil Advani, Research Head of SBICap Securities, in November 2008.
Introduction
On December 15, 2008, HCL Technologies Limited (HCL), one of the world's leading Information Technology (IT) software service companies and the fifth largest in India, announced the acquisition of the UK-based SAP5 consultancy firm, AXON Group Plc. (Axon), for £ 440 million.
HCL is a subsidiary of HCL Enterprises, based in India. The parent company was founded in August 1976 by a group of engineers led by Shiv Nadar (Nadar). It started with making micro-computers and laid the foundation for India's computer industry. Over the years, the company focused on research and development of computer hardware and software and gradually entered the software development business.
In the late 1990s, the main business of HCL Enterprises was divided into two subsidiaries - HCL and HCL Infosystems. HCL reported revenues of Rs. 75,627.80 million and an operating income of Rs.12,980.20 million in the fiscal year 2008.
Based in London, UK, Axon was started in 1994 by Mark Hunter, Donald Kirkwood, and Paul Manweiler. The company went on to become one of the prominent names in SAP Consulting. Within a few years, the company started making its presence felt in the US and the Asia-Pacific region. For the six-month period till June 2008, Axon reported revenues of £123,933 million and an operating profit of £16.5 million.
With the acquisition of Axon, HCL, whose market was mainly concentrated in the US, would gain a presence in the European SAP market. This would help the company reduce its primary dependence on the US market. On the other hand, HCL's application and infrastructure management capabilities were expected to benefit Axon by complementing its consulting and implementation expertise.
According to a report by 4Ps7, "Indeed, with IT majors across the globe trying to dilute their focus on the US, HCL's latest European bait would allow it to hedge its position evenly across all markets. Secondly, while Enterprise Application Service8 (EAS) business is the talk of the town for all IT MNCs like IBM, Accenture et al, the deal gives HCL an edge in this regard too."
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