Market Overview
Recently released consumer metrics show a positive uptick in consumers’ view of the future US economic outlook. Despite the fact that a recent CNN poll showed that 75 percent of respondents believe the economy is in bad shape, versus 43 percent a year ago, the Conference Board released numbers showing a second straight monthly increase for its consumer confidence index. The consumer confidence index showed an August increase to 56.9, up from a revised 51.9 in July, the largest gain since August 2006.
However, top economists and Federal Reserve policy makers are beginning to voice concern about inflationary pressures as the nation attempts to recover from the housing and credit market problems that have plagued the economy. A National Association of Business Economics survey showed that although 46 percent of respondents continued to cite debt levels and the credit crunch as the biggest problem facing the economy, those naming energy prices and overall inflation rose from 5 to 16 percent and 10 to 15 percent, respectively, since March.
While the Fed left the benchmark rate unchanged at its most recent meeting, Federal Reserve policy makers signaled concerns about future inflation, with minutes stating that they anticipated their next change in interest rates will be to raise them, although timing would be dependent on economic and financial developments. Chairman Bernanke pointed to the recent slide in commodities prices as a factor that may help to ease pricing pressures in the coming months.
Deal Overview
Several recently closed and announced deals in the IT services industry are likely to spur further consolidation in the space. Hewlett-Packard closed its $13.9 billion acquisition of Electronic Data Systems on Tuesday, putting the finishing touches on a deal that was announced in May. Tuesday also saw Infosys announce it had agreed to buy UK-based IT services firm Axon Group for $753.1 million. The offer values Axon, who reported 2007 net profit of $37.4 million last year on revenue of $378.3 million, at a 19.4 percent premium over its closing price on Friday. The deal is one of the largest overseas acquisitions by an Indian technology company and is expected to significantly increase Inofsys’ consulting reach and capabilities. In addition to the above deals, PricewaterhouseCoopers’ non-compete with IBM, which stemmed from its sale of PwC Consulting and prevented the Company from IT consulting and systems integration work, expired in October 2007, an development that could drive additional deals as PwC seeks to actively reenter the IT consulting market.
