IBM, Infy in final push for Fidelity IT captive

INFOSYS Technologies and IBM are locked in a battle to acquire the Indian IT captive unit of the world’s largest mutual fund firm, Fidelity Investments. The deal may involve $150-180-million upfront cash payment in return for an assured multi-year outsouring contract, at least two people involved with the matter said. A senior official at one of the firms bidding for Fidelity’s back-office business, requesting anonymity, said, “IBM has offered to pay around $150 million for the unit, while Infosys has indicated that it could pay up to $180 million.”
Though Wipro is still left in the fray, the tussle is between IBM and Infosys as of now, a person involved in the negotiations said.
Fidelity outsources around $50 million worth of projects to Infosys every year. For IBM, Fidelity is an over-$200-million customer. Officials at Infosys and IBM did not offer any comments in response to an email query sent by ET on Thursday. A Fidelity spokesperson said: “We can confirm that as part of our global business transformation strategy, we are exploring options to optimise our Technology Delivery Model. We are evaluating sourcing options with leading global technology service providers to maximise the value we can offer our stakeholders, including employees. It is too premature in the process to talk about specific details and anything else is purely speculation at this stage.”
Banking sources said other bidders such as Capgemini, Accenture and HP-EDS have dropped out of the fray. Tier-II Indian firms such as iGate explored the possibility of bidding but did not make much advance with Fidelity laying down stiff conditions for the race. Fidelity’s IT captive is part of India-based Fidelity Management & Research (FMR), with centres in Bangalore and Chennai employing approximately 2,000 people. Accenture is believed to have quit the fray after indicating it may not absorb the entire employee count, but this could not be verified independently. An outsourcing expert, who did not wish to be quoted, told ET that IBM could score over Infosys because of its over two-decade-old relationship with Fidelity. Captives sold in recent times
“AROUND 15-20 years ago, Fidelity and IBM had come together to form Fidelity Employee Services Company, or FESCO — so IBM has much deeper relationship with Fidelity,” he said. While Infosys brings pure offshore expertise, IBM derives three times what the Indian giant gets from serving Fidelity globally.
In the last six months, US financial behemoth Citigroup and UK insurance giant Aviva sold their captive back-office operations. WNS Holding paid Aviva $228 million upfront cash and received $1 billion outsourcing contract spread over eight years, while Tata Consultancy Services (TCS) acquired Citigroup’s BPO arm for $505 million in return for business worth $2.5 billion in the next nine years.
Citigroup also exited its IT captive unit last month when Wipro acquired Citi Technology Services for around $127 million. This came with Citigroup’s commitment to outsource all future infrastructure management contracts to Wipro, potentially worth almost $1 billion over six years. Customers such as Fidelity and Citi plan to focus on their core banking businesses by selling off their captive IT and back office units to vendors such as IBM, Infosys and Wipro. Since these transactions come with assured annual revenue commitment for suppliers, customers are able to bargain for lower billing rates, depending upon the kind of projects.