Wipro buys Citi IT arm for $127 m

IPRO Technologies on Tuesday announced that it is buying the IT arm of Citigroup in India for around $127 million in a deal which could yield contracts worth up to $1 billion for India’s third largest software exporter from the global financial services provider. The all-cash deal to acquire Citi Technology Services (Citos) comes with a commitment by Citigroup to outsource all future infrastructure management contracts to Wipro, which will absorb the around 2,000 staff of Citos in Mumbai and Chennai. As part of the deal, Wipro will deliver infrastructure services and provide application development and maintenance to Citi for six years, assuring the Bangalore-based company of at least $500 million in revenues over the period. “It could be twice as much over the next few years,” said Jagdish Rao, Citi’s global technology head. “As we face these challenges, there will be greater demand for moving more work to offshore locations,” he added. ET had reported the likelihood of Wipro acquiring Citos in its edition on November 4. The online edition of this paper was the first to publish details of the acquisition on Tuesday ahead of the official announcement. Girish S Paranjpe, joint CEO of Wipro’s IT business, said the acquisition will help the company better serve its customers in the banking sector.” “While banking and financial services customers have done application development outsourcing, they have not really done much of infrastructure and business process outsourcing. This presents a huge opportunity for us,” he said. IT’S A DONE DEAL The deal, $127 million in cash, adds another pearl to Wipro's growing acquisition string Deal comes with Citigroup's committment to outsource all future infrastrcuture management contracts to Wipro With this deal, Wipro and Citi have signed a master services agreement that assures Wipro of at least $500 m in revenue over 6 yrs Wipro will now takeover around 2,000 people of this captive spread across Mumbai and Chennai Citos sales at $80 m INFRASTRUCTURE services contributed almost 17% to Wipro’s revenues from its IT business during the three-month period which ended in September. Citos, which reported revenues of $53 million for 2007, is seen closing this year with sales of $80 million. Mr Paranjpe said that the deal is expected to close in the quarter ending March and revenues from Citos may be partially reflected in Wipro’s accounts for that period. Captive organisations of large customers have always been an attractive target for technology vendors such as Infosys, TCS and Wipro. In October, TCS acquired the Indian BPO arm of Citibank for around $505 million in a deal which came with assured business of some $2.5 billion over nine years from Citibank. Citigroup Global Services, the BPO arm, is expected to generate revenues of around $278 million this year alone. The Citos transaction marks the exit of Citigroup from its captive operations in India. “We are not selling these captives because of the financial meltdown. We would have done it in any way to get the next level of growth for these operations,” said Mr Rao. “We do have similar captive centres of excellence in other locations across the globe, but I cannot comment if we are evaluating anything similar for those operations.” Wipro’s last major IT acquisition was the $600 million purchase of Infocrossing in the US in 2007. Mr Rao said that Citigroup’s IT budget will remain mostly unchanged in 2009 as the company attempts to cope with pressures of the global economic downturn. “We will spend around 8% of our revenues on IT next year. The focus is how much more can we get out of the existing budget,” he observed. Citigroup outsources IT contracts to leading vendors such as IBM, TCS, Wipro and Infosys. “A large part of our IT budget is dedicated to infrastructure and application maintenance, and that will remain a mandatory spend.”