TCS snaps up Citi India's Back Office

With TCS inking a deal with Citigroup, the US financial giant will become its largest customer and revenue contributor. TCS is acquiring the Indian back office of Citi for $505 million, and has also struck a deal which will assure a steady revenue for nearly ten years. After the deal, Citi will contribute $280 million per year as against GE’s contribution of $200 million to TCS revenues, thus overtaking GE as the largest client.The relationship between TCS and GE has been so strong that when TCS was readying for its IPO in 2004, it intended to allot some shares to GE because of its long association and as a goodwill gesture. However, this did not materialise. TCS has been reducing its dependence on GE over a period of time by expanding its clientele across different regions. From a peak of over 25%, GE’s share has come down to below 18%, say analysts.Citi has been TCS’s customer since 1992 and the latest deal will enhance TCS’s domain expertise in the core banking space. “This transaction will complement our domain expertise and bring new capabilities to TCS that will help drive growth,’’ said S Ramadorai, CEO and MD, TCS. TCS expects to leverage Citi’s products and processes, which it plans to cross-sell to its other financial institutional clients. The banking financial services and insurance vertical is the largest for IT companies. As for TCS, this vertical contributes 40-42% to its $5.7 billion revenues. TCS is buying Citi’s BPO arm with 12,000 employees for $505 million, nearly twice its revenues, which analysts term to be an expensive deal given the current market environment. Citigroup Global Services, earlier known as E-Serve International, has been valued at Rs 1,200 crore when the stock was delisted from the bourses. The Citi deal will catapult TCS to the number two position in the BPO space after Genpact.For Citi, the sale is in line with its strategy to remain “a fit company’’ and to reduce its operating expenses related to BPO.“It will allow us to focus on our core financial services competencies,’’ said Citi India head Sanjay Nayar. Citigroup Global Services (CGSL), with offices in Mumbai, Chennai and Gurgaon, provides services to Citigroup’s consumer, corporate and global wealth management businesses globally. TCS intends to retain the CGS management team. The company earns 43% of its revenues from North America, 26% each from emerging market economies and India and 5% from the APAC region. Some analysts have viewed the acquisition as positive and said it would give the software services firm much needed visibility and stability with a large customer given the backdrop of the current market situation.