Cognizant Buys UBS India Center for $75 million – Build , Operate and Sell (BOS) for captives
SOURCE: TechGoss
Date: Oct 15th, 2009
Looks like the sources at TechGoss had the scoop when they confirmed early Oct that Cognizant was the front runner in buying UBS operations in India.
http://www.techgoss.com/Story/268S11-Techgoss-prediction-true–nbsp–Cognizant-buys-UBS.aspx
Cognizant is getting another chance to start their BPO business with acquisition of a captive. Interestingly as per some earlier news sources both the Poland and Indian captive centers of UBS were in play but Cognizant has acquired only the Hyderabad, India center. Though this acquisition is not as large as TCS buying the Citi captive in India but it provides Cognizant a firm footing in the marketplace for BPO, KPO Operations. Cognizant has a large footprint in IT services for financial services and should be able to leverage their acquisition to get deeper into existing clients and offer a broader set of services.
The time span from captive to third party vendor seems to be shrinking as more firms are looking to get out of running captives in India. It was mid 2006 when UBS had announced setting up their captive in India ( UBS to set up captive in India ) and in less than 3 year span have managed to Build, Operate and Sell (BOS). If the original investment UBS made in Hyderabad was around 50 million franc as the article mentions, a 3 year sale price of $75 million dollars is not a bad return for UBS. Cognizant is guaranteed a $442 million contract over five years.
The acquisitions of captives by large third party Indian vendors has been a market driven need of the US firms looking to reduce cost but also speaks to the maturity of the Indian vendors in doing such deals and providing services which were considered too proprietary or confidential to source to third parties.
These transitions are never easy and moving a captive mindset to a customer oriented, third party vendor mindset is a challenging task both for the seller and buyer. A number of BOS deals after a couple of years they were announced still continue to face integration challenges.
Interestingly one of the few outliers in captive operations seems to be Wells Fargo. Recently remember reading a quote from Wells where their senior executives were looking to expand their captive center in Hyderabad. Wells has never gone around doing offshoring in a large way but with the acquisition of Wachovia last year , they acquired the Wachovia-Genpact relationship.
This deal is good for Cognizant and makes the market for integrated players (IT, BPO services) more competitive. This does put pressure on pure play BPO providers like WNS, EXL and Genpact to figure out their growth strategies. There is already a lot of activity and noise in Pure play BPO provider space with investors looking to sell their shares or looking for partners in the IT space.
From a customer perspective having an integrated service provider is a positive if the provider is truely integrated. A number of the large integrated service providers still continue to operate as separate units ( IT, BPO, Infrastructure services) but seem to be listening to the marketplace and working towards an integrated delivery model.
As the famous Black Eye Peas lyrics go ’ You so 2000 and late’ , that is what captive operations have to be thinking now!
Mohit Sharma is the CEO of Corrystone Global Partners. Corrystone is an outsourcing consulting firm providing benchmarking, operational risk compliance, operational audit and transition management services to companies with operations in US and India. We work with firms which are exploring India or low cost US locations for IT, Business Process work and or have established IT/operations in India and US and are looking at ways to further optimize cost and manage operational risk.
