Why the Panaya Buy-Out ?

This is a building shaped like a sphere, located in the campus of the software company, Infosys in Mysore, India (Photo credit: Wikipedia)

It is not every day that you are surprised and impressed to see a foreign buy-out by a completely desi origin Indian firm.

Having stated that; I can clearly list the recent of buying events when Hindalco bought Canadian Novelis; Tata acquired European Corus, and British luxury car-maker Jaguar-Land Rover through their Steel and Motors’ divisions respectively.

If I deep dive further into the IT-sector to be specific; then I am reminded of the big-wig buys such as of US-based TriZetto and Zafferra by Cognizant. Wipro bought Infocrossing; and HCL bought British based consulting firm Axon Group. And just recently I had the news of Infosys buying US based Panaya from all the sources around me.

As the general understanding goes, most of the buy-outs are in the domain that the buyer is in and therefore majorly done to increase stake in the sector.

I therefore could have shrugged off the Infy shopping cart as an attempt by a newly appointed, first non-founder CEO, Mr. Vishal Sikka to garner some bling to his resume. But then, I got to notice the nature of business of the bought over firm, which made me research all over regarding this acquisition. Yes, the bought out firm is not directly in-line of business with that of its purchaser.

Infosys is an business consulting, information technology, software engineering and outsourcing services firm. Whereas, Panaya being a software as a service (SaaS) company that provides cloud-based quality management services with solutions including Change impact analysis, automated code remediation, and test management.

So why an Automation product purchase to deliver services that were erstwhile done manually? Is Infy again up to some laying spree?

The differentiating aspect of the latest Infosys buy-out intrigued me for 2 reasons apart from the obvious lay-offs. Firstly, our Indian software hero is reputed for sitting on cash and cash reserves and shying away from inorganic spends like these. Secondly, it is an Automation product buy-out to deliver services which were until now delivered manually. 

So the analytical bug in me suddenly got activated. I gathered all that I could on the subject and went into a state of ponder.  All I could gather on the hard-hitting WHYs of the deal are as follows:

1.  Higher revenue costs, inefficiency of client facing roles, delay in service delivery at client ends are the bottle necks of the IT Industry.

2.  Attrition rate in the IT sector at an all time high of almost 21%.

3.  Manpower in this sector is expensive, and further addition of on-site travels which leads to squeezed margins.

4.  Existing workforce requiring constant fortification of Bonuses, perks and Appraisals; that add a major chunk to the costs. Also, the non-monetary investments like time and management further add to the impending costs.

5.  Processes like Testing tend to become repetitive for the skilled engineers and also curb creative growth in them.

So, finally the jigsaw came out fine and just. In these competitive times, a company has to think out of the box to stay profitable in the game. Gone are the times when growth is directly linked with that of the linear growing work-force. In order to get into higher revenue streams, the impending need is to get into next generation technologies like the big data analytics, internet-of- things, data mining, mobility, automation and artificial intelligence. After all, emulating others from geographies (read Tel Aviv, Silicon Valley) that are known for cutting-edge technologies is the least an ambitious firm could do for themselves. 

By the way, Panaya is also funded by an Israel based private equity firm - Israel Growth Partners and most of its 156 employees are based out of Israel.

Let us wait and watch what more insight comes out of this deal or from that geography or from that sector in the times to come.

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