The deal, expected to close by December, will be the biggest takeover to date involving an Indian IT services vendor and will see Wipro paying $18.70 per share for full control of Infocrossing. Wipro has traditionally been more acquisitive than its rivals such as TCS, Infosys and Satyam, and had been rumored to be lining up a significant takeover for a number of months.

Leonia, New Jersey-based Infocrossing made its name as a provider of hosting services but has since expanded it offering to include infrastructure management, messaging services, enterprise applications management and healthcare IT and business process outsourcing services.

Infocrossing operates five data centers, located in New Jersey, Georgia, Arizona, California and Nebraska and employs approximately 900 staff. In the twelve months to the end of December 2006, the company reported net profit of $8.5m on revenue of $229.2m, up 55% on the previous year.

According to Wipro, the acquisition will fill in a number of gaps in the company’s infrastructure services portfolio, including IT operations management, data center services and co-location and hosting services. The company said that its infrastructure operation had been experiencing strong demand over the last year or so, proving global clients are increasingly realizing the value of these services.

Our View

The rationale behind Wipro’s proposed takeover of Infocrossing is fairly clear. Indian IT trade association Nasscom currently values the remote infrastructure and operations management market at approximately $55bn and this figure is expected to increase rapidly to around $70bn over the next few years. Unsurprisingly, India’s major IT vendors are all looking to grow their presence in this space.

The deal also seems to confirm the popular view that India’s big players are set to become more aggressive in their M&A strategies, having previously preferred to concentrate on niche deals. In recent months, Infosys has been linked with a move for European IT services giant Capgemini, while Wipro itself has dropped strong hints that it will make a significant move in Germany in the near future.

The challenge for Wipro will be to maintain its impressive profit margins while supporting major US clients from onshore, rather than offshore, facilities.