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IT services cos discover silver lining in cloud deals

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Source: ETtech

In the latest deal that affirms this strategy, Infosys said on Monday it would pay around $250 million to buy Simplus, a company specialising in consulting and implementing Salesforce software.

IT services companies are seeing increased opportunities in chasing revenue from new software vendors — sparking a series of buyouts — as clients move away from paying large upfront licence fees for software and hosting on-premise servers.

In the latest deal that affirms this strategy, Infosys said on Monday it would pay around $250 million to buy Simplus, a company specialising in consulting and implementing Salesforce software.

The deal comes a week after larger rival Cognizant announced two transactions in the space, heating up the race for cloud services revenue.

In 2018, Infosys had acquired in Fluido, a firm with core competence in Salesforce software for the European market.

Analysts said Infosys’ latest acquisition, coupled with the Fluido buy, would help bolster its Salesforce practice.

“This acquisition is a strong one for Infosys. When we did a study on provider capabilities for Salesforce ecosystem, we had seen that Infosys — though being a leader — was lagging some of its competitors,” said Mrinal Rai, principal analyst at consultancy ISG. “They had strong offshore capabilities, but they needed a similar onshore presence.”

Salesforce is one of the largest Software-as-a-Service companies, so called because they allow customers to rent software per user on the Cloud, or internet. Salesforce, which offers customer relationship management software, is growing at over 20% annually.

“This acquisition is key to staying relevant to the digital priorities of our clients and demonstrates our commitment to the Salesforce ecosystem,” Pravin Rao, Chief Operating Officer of Infosys, said in a statement. “The acquisition reaffirms our continuous endeavour to strengthen our strategy of scaling our Agile Digital and cloud-first digital transformation capabilities.”

The deal will add 50 basis points to Infosys’ revenue in the next fiscal year beginning April 1, analysts at research house Emkay Global have estimated.

Simplus has over 500 employees and offices in North America, Sydney, Melbourne, London, along with a delivery centre in Manila. The company had about $67 million in revenue in the fiscal year ending January 31, 2020.

Infosys will pay $200 million by March, when it expects to close the deal with Simplus. In addition, there are employee incentives and retention bonuses amounting to $50 million on meeting certain performance conditions over three years.

The deal follows two Salesforce partner acquisitions made by larger rival Cognizant last week. IT analysts expect more deals to follow.

“The SAP, Microsoft, Oracle service lines are drying up as customers are moving to Software-as-a-Service offerings, of which Salesforce is the largest platform… Now, instead of the CIO, the chief marketing officer controls more of the spending and they prefer these models, so it makes sense to build those service lines,” said Sanchit Vir Gogia, CEO of Greyhound Research.

There are over 100 Salesforce platinum partners globally, Gogia said, and the top Indian IT companies are already platinum partners. However, not all have capabilities in each area of the Salesforce platform, leading to the need to merge to provide a single consolidated offering, he added.

Cognizant has been the most acquisitive in the Salesforce space, analysts said, as the opportunity for growth is very large.

India’s largest IT services provider, Tata Consultancy Services, has not made an acquisition in the space but has built its own practice organically.

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