Outsourcer Cognizant Technology Solutions said on Thursday that it has signed a definitive agreement to acquire the Indian IT and BPO (business process outsourcing) services subsidiary of UBS, a large European financial services firm.
Cognizant said in a filing to the U.S. Securities and Exchange Commission (SEC) on Thursday that it was paying about US$75 million for UBS' Indian subsidiary, which would be funded from the company's current cash reserves.
Subject to certain conditions, the transaction is expected to close in December, Cognizant said.
The move reflects a growing trend, after the recession, for financial services companies to sell off their large Indian services subsidiaries, and outsource the work to service providers.
Citigroup, for example, sold its Indian BPO operation to Tata Consultancy Services, and its IT services subsidiary to Wipro, in return for business from Citigroup.
The acquisition of the Indian subsidiary, UBS India Service Centre (UBSIC), will enable Cognizant of Teaneck, New Jersey, to expand in the BPO market, starting with financial services BPO, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International Inc in Houston, Texas.
Cognizant will also be able to expand in the European market after the acquisition, he added, while also deriving revenue from its investment from the start.
In its fiscal year ended December 31, 2008, 79.1 percent of Cognizant's revenue came from customers in North America, with 19.2 percent of revenue from clients in Europe.
The acquisition gives Cognizant 2,000 more staff in India, and also business from the UBS Group. Cognizant said it has entered into a services agreement with UBS whereby it will provide a range of BPO, IT, and remote infrastructure management services to UBS divisions around the globe.
In its filing to the SEC, Cognizant said that it expects to receive about $442 million in revenue from the services agreement during its five-year term.
The sale by UBS, and those previously by Citibank and others, is not an indication of a definite trend that foreign companies will stop setting up subsidiaries in India to do development work or offer services, analysts said.
"The decision to do it yourself or to outsource the work is a continuous one," Pai said. The recession may have pushed some financial services companies to try to cash in on their investments in large Indian subsidiaries, he added.