Wipro acquires Nasdaq-listed Infocrossing for $18.70 p/sh

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IT major Wipro  has acquired Nasdaq-listed Infocrossing for $18.70 per share in an all-cash deal. Earlier, CNBC-TV18 had reported the Infocrossing deal news, on August 3.

Infocrossing is an outsourcing solutions firm. The deal size is about $450-500 million.

Infocrossing's FY07 revenues stood at $232.4 million and its Net Income was at $9.3 million.

The acquisition will be completed by December. Infocrossing has 5 data centres, and around 900-employee staff in the US.

Sudip Banerjee , Chief Strategy Officer, Wipro said that the rationale behind the deal was to provide a complete end-to-end infrastructure management solution to their clients.  

 

Excerpts from CNBC-TV18's exclusive interview with Sudip Banerjee:

 

Q: What is the rationale behind this deal?

A: In the infrastructure management space, one of the elements we were looking to address was the capability gap we had regarding managed data center hosting services.

 

We provide a range of services but we did not have this particular element. So, we were looking at adding on this capability and Infocrossing provides that capability.

 

Therefore, the rationale is to provide a complete end-to-end infrastructure management solution, which we now have the capability of offering to our clients.

 

Q: Is it not a little expensive at USD 600 million because as per global benchmarks, the deal sizes are about two times topline and about nine times EBITDA, but you seem to have paid about 14 times EBITDA?

A: It depends on the value of the property and the amount of strategic fit that you consider within each of these properties. As far as we are concerned, there is a very solid synergy and the fit which we have for this justifies the price that we have paid.

 

It is not 14 times, it will be a little less and will work to about 12 times, but we think this is the right price for the property.

 

Q: Could you elaborate a bit about the synergies, in terms of what kind of topline do you expect from this acquisition and when do you expect it to kick in and in which quarter?

 

A: We expect the transaction to be closed no later than December '07. So, we will actually start seeing revenues under the combined entity, from the first quarter of the next financial year, by January-February-March, which will be a fourth quarter of the current fiscal.

 

As far as revenues are concerned, we are expecting that we will be able to grow this business from its current level at a very healthy clip. We have already mentioned that Infocrossing's current size is roughly about USD 250-260 million, which means about USD 65-70 million a quarter revenue.

 

We expect to grow that significantly, as soon as we put in the combined energies of Wipro's infrastructure management practice, along with Infocrossing's managed data center hosting services.

 

The other component in this deal is the healthcare piece. Infocrossing is also a heathcare solutions provider, where they have a unique IP and actually own the platform. That accounts for roughly 20-25% of the their business.

 

We have a healthcare vertical, which has been one of our fastest growing verticals in recent times. We entered into that market about three years ago and we will cross USD 100 million in size this year with Infocrossing's healthcare arm. We will be able to provide healthcare solutions to our large customers, including the specific platform. The result of this will be that we will be able to get a much larger customer base even in the healthcare segment.        

 

Q: Infocrossing currently has about five centers in the US and about 900 employees. Do you see a large portion of this work now moving offshore to India and what kind of revenues do you foresee Infocrossing having in the next year or two?

 

A: As far as our infrastructure management business is concerned, along with Infocrossing, we expect in a three-year perspective that will go up to a billion dollars. The combined revenues today of the two entities would be about half a billion dollars. So, we expect to double in three years on the infrastructure management piece itself.

 

As far as the five data centers of Infocrossing are concerned, those are in US locations and will remain there. We do not intend making any changes to that. The 900 employees that Infocrossing currently has will also remain there and the work that we will additionally come offshore will be new work, which will be in addition to the work that currently Infocrossing does for its existing customers.

 

We are not expecting any employee reductions, nor do we want to bring any existing work offshore, only additional work will come here.

 

Q: You mentioned USD 1 billion. Is that deliberately conservative, given the fact that this space seems to be growing at about 70% clip?

 

A: That is something, which we will revise in terms of our targets as we go forward. But that is the bare minimum that we are right now talking about.   

 

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