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IT Cos Seeing Increased Opportunity in Cloud Service Revenue

IT service companies are seeing increased opportunities in chasing revenue from new software vendors with a series of buyouts. This is happening mainly as clients move away from paying large upfront licence fees for software and hosting on premise servers.

Two recent deals confirms this strategy, where Infosys informed of paying around $250 million to buy Simplus, a company specialising in consulting and implementing Salesforce software.

Recently Cognizant has announced two transactions in the space, heating up the race for cloud services revenue.

“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.”

“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.”

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.

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