Cognizant snaps up UBS' Indian captive for $75 million

UBS, Switzerland’s biggest bank by assets, has sold its Indian back-office captive to multinational services firm Cognizant Technology Solutions for around $75 million along with a five-year outsourcing contract worth up to $442 million. The acquisition will strengthen Cognizant’s BPO practice and also help it expand its relations with UBS, an existing client.

“We are among the top five companies providing technological services for the financial services sector. This acquisition helps us consolidate our position, expand our service offering and take our solutions to a wider geography. We have significant revenues coming from the US whereas the USB ISC (India Service Centre) has more than half its revenues coming from APAC and Europe regions. So, this helps in diversifying our revenue base,” Cognizant vice-chairman Lakshmi Narayanan told ET NOW on Thursday.

A report by Deutsche Bank said the deal was reasonably priced, through which Cognizant would acquire highly skilled employees. The report further said, “It highlights Cognizant’s ability to expand with existing clients and captives tend to have margin leverage potential related to improved span of control opportunities.”

ET had reported last month that UBS was in discussions with Cognizant for a potential sale of its UBS India Service Centre and was exploring to bundle an outsourcing contract with the transaction. The bank had held discussions with Infosys and Wipro who count UBS as their customer.

Divesting non-core captive operations is a strategy adopted by banks such as Citigroup and UBS for focusing better on their core operations and also gain better outsourcing rates by bundling such transactions with a multi-year contract.

An upfront payment also helps them unlock value from non-core assets. Citibank sold its Indian back office business to TCS for around $505 million in October last year and Citi Technology Services for around $127 million to Wipro in December last year. Both these transactions came with assured outsourcing business of around $3 billion together for these vendors.

While around 2,000 staff of UBS’ India captive unit in Hyderabad will move to Cognizant as part of this transaction, the bank’s captive operations in Poland has not been included in this deal, a Cognizant spokesman added.

The $442-million outsourcing contract bundled with this deal includes work beyond back office and knowledge process outsourcing and could involve application development and IT hardware management as well.