Infosys inks US$250M Philips BPO deal

Mega acquisition-cum-outsourcing deal will see India's Infosys take in 1,400 professionals and provide finance and accounting services to Philips Electronics.
Written by Swati Prasad, Contributor

INDIA--India's leading IT bellwether Infosys Technologies has bagged a US$250 million deal with Royal Philips Electronics, which includes a services contract and the acquisition of some Philips assets.

This will be Bangalore, India-headquartered Infosys' only second acquisition in its 25-year history where it last acquired Australian Expert Information Services for US$22.9 million in 2003.

Described by Infosys CFO V. Balakrishnan as an "outsourcing deal structured as an acquisition", the agreement includes Infosys' move to take over Philips' finance and accounting business process outsourcing (BPO) centers in three countries--India, Poland and Thailand--from Oct. 1 this year. Infosys will absorb 1,400 Philips professionals currently stationed at the three centers, into its own BPO headcount.

The Indian services giant on Wednesday announced it will pay Philips US$28 million for the BPO assets, which include infrastructure, processes and intellectual property.

The deal also entails a seven-year contract with Philips that will see Infosys providing finance and accounting services, as well as the processing of purchase orders.

Infosys will deliver its services at a reduced billing rate during the first year, after which employees the Indian company acquired can be assigned to service clients other than Philips.

Infosys said it intends to bring down the operation cost of the three BPO centers, in particular, it added that the acquisition will strengthen the company's foothold in Europe.

Infosys CEO S. Gopalakrishnan said in a statement: "Global corporations require transformation partners like Infosys to enhance their competitiveness in the flat world… We are excited to partner with Philips to take their F&A (finance and accounting)and procurement functions to the next level of transformation."

Infosys' BPO subsidiary currently has close to 11,000 employees, and posted revenues of around US$164 million--registering over 70 percent growth--and net profit of US$37.5 million in its last fiscal year, ended Mar. 31. This business registered a revenue growth rate of over 70 percent

In an e-mail interview, Milan Sheth, a partner at Ernst & Young India's outsourcing advisory center, said the deal will allow Infosys to get "a readymade delivery engine from a very large and reputed European multinational".

Sheth said a deal of this kind, where a company exits from its captive units through a reverse BOT (built, operate, transfer), is quite popular in Europe but is still fairly uncommon in the Indian context.

Michael R Guilbault, senior analyst of professional services business quarterly at Technology Business Research (TBR), said in a research note: "This is one of the biggest outsourcing deals ever signed by an Indian IT services firm," Guilbault said, noting that the agreement is as significant as the US$244 million contract inked between Tata Consultancy Services and ABN Amro in 2005.

"This deal clearly shows that Infosys is climbing the value chain by its newfound willingness to take on staff and facilities as part of a deal," he added.

Earlier this month, rumors had swirled over a possible merger between Infosys and consulting firm Capgemini, though neither companies were willing to comment on the speculation. TBR's Guilbault noted that this union was unlikely.

Swati Prasad is a freelance IT writer based in India.

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