Cognizant to acquire UBS India captive for $75 mln

By Madhav A Chanchani (VCCircle.com)

Cognizant has also entered into a 5 year service agreement with UBS under which it stands to earn revenues of $442mn.

Nasdaq-listed IT company Cognizant Technology Solutions has snapped up the Indian captive outsourcing unit of Swiss banking major UBS for $75 million. The acquisition will be funded from the company’s current cash reserves. Others like Genpact, Wipro and Infosys were also reported to be in the race.

Both companies have also entered into a five-year service agreement, under which Cognizant stands to earn revenue of $442 million, the IT firm, which has a huge presence in India, said in its filing with the US SEC. Cognizant will provide BPO, KPO, IT, and remote infrastructure management services to UBS. UBS also has a similar but smaller center in Poland, which is not part of this deal.

The Coginzant-UBS deal continues in line with the trend of captives of banking and financial services firms being taken over by IT services providers. The deal would be the fifth such in recent times (see table).

The biggest transaction was the acquisition of Citigroup Global Services by TCS for $505 million in October last year. Acquiring captives help service provider build scale and revenues at a time when new costumers are hard to come by. Such deals also help get industry specific capabilities.

Also the balance of negotiations is expected to go in favour of service providers with growing maturation of the third party outsourcing industry in general and coverage of specific industry in general, said Siddharth Pai, managing director of outsourcing advisory firm TPI's India unit in a research note last year.

The UBS India Service Centre Pvt Ltd, located in Hyderabad, has 2,000 employees, two-thirds of whom are engaged in KPO/BPO services. The deal is expected to close in December 2009.

This would be one of Cognizant bigger acquisitions. In September, the company acquired the assets of Pepperweed Advisors, the IT consulting services division of Pepperweed Consulting.