UPDATE: MphasiS To Buy AIG's Software Unit In All-Cash Deal
12 August 2009 - 7:52PM
Dow Jones News
MphasiS Ltd. (526299.BY) said Wednesday it agreed to buy an
American International Group Inc. (AIG) unit in India that
currently provides software services exclusively to the U.S.-based
insurer.
Bangalore-based MphasiS didn't say how much will it pay for AIG
Systems Solutions Pvt. Ltd., but Gopinathan Padmanabhan, head of
its application-services business unit, said it will be an all-cash
deal and "will be funded internally."
As of April 30, MphasiS - majority owned by Hewlett-Packard
Co.'s Electronic Data Systems Corp. - had about INR3.56 billion
($74.06 million) in cash and bank balances, including short-term
investments, it had said in May.
In recent past, Indian technology companies have been buying the
local captive units of crisis-hit global financial firms. In most
cases, the deals come with guaranteed business from the company
selling the units, making them attractive for the acquirers.
In October, Tata Consultancy Services Ltd. bought the
back-office unit of Citigroup Inc. for $505 million, while in
December, Wipro Ltd. acquired another captive unit of Citigroup for
$127 million.
After completing the acquisition, AIG Systems will become part
of the application-services business unit of MphasiS and offer
services to other insurers as well, Padmanabhan told Dow Jones
Newswires.
The acquisition will help MphasiS gain market share in the
insurance domain, which is part of the banking, financial services
and insurance, or BFSI, segment that accounts for about 40% of the
company's total revenue.
"It (the buy) is definitely going to be an accretive business
for us," Padmanabhan said. "Overall we expect the (revenue
contribution of) BFSI segment to go up."
He didn't provide details on the revenue contribution from the
acquisition, saying the company is in a quiet period ahead of its
earnings release next week for the fiscal third quarter ended July
31.
Analysts expect the deal to add $30 million to $40 million of
revenue per year. "MphasiS should get some guaranteed business in
return" from AIG for buying the unit, a Mumbai-based analyst said,
asking not to be named.
For the quarter ended April 30, MphasiS posted revenue of
INR10.49 billion.
The acquisition will bring in roughly 850 AIG employees to
MphasiS, Padmanabhan said. MphasiS already has 33,810 employees
across its operations.
-By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464;
dhanya.thoppil@dowjones.com