Infosys' acquisition of US-based digital creative and consumer insights agency WongDoody Holding Company for $75 million could just be the beginning of many more deals in the pipeline - the company reportedly sees acquisitions as a key element in the three-year roadmap laid out by CEO Salil Parekh.
"Our head of M&A has an active list of companies that he is looking at today, there are ongoing discussions. The acquisition element is part of our transformation plan. Fortunately, we have a very strong balance sheet and generate huge cash. We have the ability to make some big moves there," he told The Economic Times in an interview. "Wongdoody was a small acquisition. There will be something larger that we will also look at."
According to him, deals in the "digital pentagon" will be the company's first preference. In the analyst meet post the Q4 results in April, Parekh had defined a "pentagon of five dimensions for digital business", namely user experience, insights (covering data analytics), Internet of Things and the like - referred to as 'innovate', cybersecurity or 'assure', and 'accelerate', encompassing cloud movement, digitization and legacy modernization. Parekh pegs the overall opportunities in this digital pentagon at around $160 billion, and growing at a rate of 15 per cent year-on-year - much higher than growth in traditional IT services.
"There is no company that is 100% in there. They will be 30% in there or 50% in there," he said, adding, "There are areas within the core services where we see very good traction of artificial intelligence and automation. There are some fast growth areas - engineering services, BPM (business process management). Other sectors like retail and insurance are doing well."
Parekh further pointed towards the demand for solutions comprising multiple components instead of standalone pieces of technology. "For example, with the insurance company John Hancock - where we sold a multimillion dollar deal - we essentially built a new insurance platform for them, a combination of digital and what they were doing on modernisation. In our current pipeline, we have over 25 such deals that are cooking," he added.
Therefore, going ahead, Parekh is confident that Infosys will better its Q1 record of $1 billion in combined contracts. As he pointed out, Infosys is one of the few companies with "such a robust balance sheet" and hence it can afford a deal that many others may not attempt.
To remind you, in Parekh's three-year roadmap, 2018-19 is pegged as a "year of stabilisation" for the company while the second year targets building momentum. "The third year we will start to accelerate so that we can have more and more share of our client's revenue and that will obviously translate overall to a better Infosys," he has previously said.
Edited By Sushmita Choudhury Agarwal