Wipro buys Citi Tech for $127m

BANGALORE: Wipro, the country's third largest IT company, on Tuesday announced that it is acquiring Citi Technology Services (CTS) for $127 million (about Rs 600 crore) in an all cash deal. This is Wipro's 16th acquisition since 2002. All of these have been in the IT space, except one Unza in the consumer goods business. CTS, started in 2005, is Citi's India-based captive provider of IT services and solutions to the bank's entities in 32 countries. It has facilities in Mumbai and Chennai, with an employee strength of about 1,650. The company is expected to end this calendar year with a revenue of $80 mn, up from $53 mn in 2007. As part of the deal, Wipro will deliver IT services and solutions to Citi for a period of six years. This agreement, the companies said, will see the delivery of at least $500 mn in service revenues over the period of the contract. Wipro said the CTS acquisition will help in enhancing its remote infrastructure management capabilities and domain expertise. "The application development and maintenance services strengths will help us grow in investment and retail banking," said Girish Paranjpe, joint CEO of Wipro's IT business, at a media conference here. For Citi, the sale of CTS means an exit from all technology related services in India. In October this year, the troubled bank sold its Mumbai-based BPO business, Citigroup Global Services, to TCS for $505 million. Wipro's takeover of Citi Technology Services (CTS) comes at a time when the financial sector across the world has seen a literal meltdown. Girish Paranjpe, joint CEO of Wipro's IT business, said the markets are volatile now, but will give more visibility by mid next year. "In the last 12 to 18 months, the BFSI (banking, financial services and insurance) sector has been the worst hit and will be the first to recover. It will start to recover in 2009," he predicted. As with most other IT companies, Wipro gets the largest proportion of revenues (27%) from the BFSI sector, and this segment has been under severe pressure. Wipro said that apart from providing services to Citi, it will use CTS to look at newer opportunities. "This will add to our recent BPO deal win in Citi's institutional clients group (ICG)," said Soumitro Ghosh, senior VP for finance solutions in Wipro. Analysts say the deal has been reasonably priced and will help the company in its growth and expansion plans. "This is a good decision. Wipro has paid a reasonable amount. They have utilised their cash, which will positively affect their topline and bottomline. And in the expansion mode, this will help the company in vertical growth," said Nilesh Kotak, CEO of financial services firm Dhanvarshaindia.com. Harit Shah, IT and telecom analyst at Angel Broking, agrees the price is not too expensive as CTS is a profitable company. "Also, with the additional agreement Wipro has signed, they have an assured stream of revenue. The area of expertise of CTS -- managed services -- is a growing area and has scope for future opportunities," he said. Last year, Wipro had acquired IT infrastructure management company Infocrossing for almost $600 million, a deal that some thought was too expensive. But Shah said the CTS deal cannot be compared with the Infocrossing acquisition since they are in separate verticals and "are reasonable in their own domains both for value and growth opportunities."