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TCS pays US$505 million for Citigroup BPO

Samad Masood | Oct. 10, 2008
Its now becoming increasingly clear that acquisitions are required just to keep up with the pack.

CGSL also brings with it a good balance of regional revenue streams, with more than a quarter of its revenues coming from Europe, another quarter from India, around 40 per cent from North America, and the rest from Asia-Pacific. CGSL brings 12,500 experienced staff about half the number of new people that TCS would usually hire each year.

Captive versus competitor

Its now becoming increasingly clear that acquisitions are required just to keep up with the pack. Indian vendors are under a lot of pressure to maintain their high margins, but there are few quality purchases to be had in the West ones that will not dent margins too much, but also bring new added revenue streams and an ability to move up the value chain.

Purchasing a captive operation, which comes with a guaranteed revenue stream and well established operations, is one way of reducing the risk of an acquisition and its something that TCS and Infosys clearly favour. But identifying and valuing such deals can be more challenging than purchasing a business on the open market. This is perhaps one reason why HCL and Wipro have been more than happy to pick up IT services firms over captive operations.

Nonetheless, with the state of the global economy reducing valuations across the board, Indian vendors will be even more keen to get involved in M&A captive or not. The race is now on to get the best quality buys!

Samad Masood is an analyst in Ovum's UK software and IT services practice, and specialises in IT services, outsourcing and offshore services. 

 

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