Tata to acquire Citigroup's BPO arm in India for $505M

A Japanese financial services group, has entered into an agreement with ailing Lehman Brothers to acquire its back office and IT operations in India

Tata Consultancy Services (TCS), India's largest outsourcer, has reached an agreement to acquire Citigroup's interest in Citigroup Global Services, its business process outsourcing (BPO) arm in India, for about $505 million in cash.

Under the agreement announced Wednesday, TCS will provide $2.5 billion worth of services through Citigroup Global Services to Citigroup and its affiliates over the next 9 years, 6 months, TCS said. The transaction is expected to close in the fourth quarter of this year.

[ For more on how the financial crisis is affecting IT and the high-tech industry, plus what IT can do to help, see InfoWorld's special report. ]

Citigroup Global Services has more than 12,000 employees in India, and is expecting revenue of $278 million this year.

TCS already provides BPO, IT and related services to Citigroup.

Nomura Holdings, a Japanese financial services group, announced Monday that it has entered into an agreement with ailing Lehman Brothers Holdings to acquire Lehman's back office operations and IT operations in Mumbai, India, for an undisclosed price.

Lehman Brothers filed for bankruptcy protection last month.

The sale of Citigroup's BPO operation in India is however not directly linked to the current crisis in the financial services sector in the U.S., as Citigroup was known to be scouting for a buyer for this operation for some months.

A number of multinational companies like Aviva and General Electric have hived off their back office subsidiaries to focus on their core business. Running subsidiary BPO and IT services operations in India is far more costly and cumbersome than outsourcing to local outsourcing companies, according to research by Forrester Research and other analyst firms.

The acquisition of Citgroup Global Services will however increase the exposure of TCS to the global financial services industry, which is seeing a shakeout. TCS earned 43 percent of its revenue in the second quarter from the banking, insurance, and financial services sector.

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