Deal includes revenue commitment of $500 mn.
In a move that can well send out a signal to the industry about the state of affairs in the captive delivery centres of global banking giants in India, Wipro Technologies has announced to acquire Citi Technology Services for $127 million (around Rs 609 crore) in an all cash deal. Citi Technology Services is the captive delivery centre of IT services and solutions centre of Citigroup in India.
This is Citigroup's second India-based asset that is being sold out to one of its service providers. The company had recently sold its captive BPO arm, Citigroup Global Services, to TCS for about $505 million. While acquiring Citi Technology Services along with its 1,650-odd employees working across its four delivery centres in Mumbai and Chennai, Wipro has managed to get a revenue commitment of about $500 million over the next six years, what Citi's Global Technology Head Jagdish Rao termed as 'minimum commitment' to the buyer. Citi Technology Services, which started operations in India in 2004, has reported a revenue of $53 million in calendar year 2007 and the company is expecting to up it to $80 million in 2008.
"It is just the starting point. We feel there will be greater demand for their services as we go forward. This ($500 million of committed revenue) is what the minimum commitment we are making at this point of time," Rao told the media on Tuesday. Citigroup has been working with Wipro for technology services for the last four years. The present commitment along with a BPO service contract, which Citi has awarded to Wipro, will make the latter the “top service provider for the company from anywhere in the world”, he added.
Wipro's BFSI practice, which was one of the largest revenue earning verticals for the company with contribution of about 27 per cent to its consolidated revenue, is under pressure much in the same way as most of its peers due to the global financial turmoil. The committed revenue from Citi as a part of the transaction is supposed to be the driving factor for Wipro for going after the deal, according to industry analysts.
Girish S Paranjpe, Joint CEO of Wipro's IT Business, however, said the company decided to acquire the unit because of the value it brought to the table. "We acquired it because of the quality of the unit that has been set up and the knowledge and expertise of the people there. Very few global banks actually have done this kind of sophisticated work out of India. This brings us a unique capability, which is not only in terms of people, but also the experience on how to run a global operation like this. More than that, it also gives us the chance to scale it up and take it to the next level. I think this is a wonderful opportunity," Paranjpe told Business Standard.
Wipro said that the Master Services Agreement that they have signed with Citi did not restrict them from serving other clients out of the centres. "We are under obligation to make sure that works for Citi do not suffer," said Soumitro Ghosh, Wipro’s Senior Vice-President, Finance Solutions. Wipro will provide technology infrastructure services as well as application development & maintenance services to Citi as part of the transaction.
Wipro has a cash reserve of close to $1 billion, including a short-term loan of close to $500 million that it raised in March last year.
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