MUMBAI: India’s largest IT firm Tata Consultancy Services (TCS) has taken a few bets in its time. Some — like going for Latin America and global delivery centres when its peers were still focussed on India delivery—have paid off, some others —such as betting big on e-business in the dotcom heydays —have failed. This week, the IT bellwether has taken another big bet—the $505-million acquisition of Citigroup’s captive unit in India in the midst of a global financial turmoil. Critics feel the company has paid more that it should have in a downturn but TCS executive director and COO N Chandrasekaran defends the price and the purchase. In an interview with ET he says acquisitions are more about strategic fit and long-term growth than about immediate events. Excerpts.
Two questions being asked are whether TCS overpaid for the Citi captive and whether it should’ve done the deal at all given the uncertainty surrounding the financial health of many large players today .
You can always argue that we could’ve negotiated harder. For a company like us which is growing and looking at strategic play for long-term growth, what’s more important is whether it's the right asset. And from that point of view, I think this asset is strategically the right fit. We already had a strong technology play, we had solutions, what we lacked was operations expertise. Now we've got that. We are the most uniquely placed among all service providers today to serve the financial services market. No one in India or abroad has this depth.
Second, is the timing right? We’ve been at this deal for at least a year, and in the last six months definitely very active. Our view is, yes there is a problem now but people are going to move forward and when that happens we have to be prepared. It’s going to take a good 3-4 months to complete the acquisition even if we are fast. And to integrate the teams, another six months, which is a good time frame to be ready when the markets recover. The third question is, are there growth opportunities? There is definitely growth because this company has been growing at a CAGR of 27% even with Citi as its only client. Even assuming the Citi growth falls below this, we are going to be targeting a lot more clients. I can tell you there is going to be a healthy growth rate, but I can't give you a number.
How safe is the $2.5 billion revenue given that many large financial players have had to fold up or be acquired?
We have protected the $ 2.5 billion revenue stream contractually. Within boundaries we've got some cover though nobody can predict what exactly is going to happen.
Would you be interested in other assets Citi might put on the block?
Like I said, we look only at those assets that make strategic sense to us. We don't think there is any other piece that is of interest to us, right now.
Do you have an exclusive or preferred status with Citi? Will you get Wachovia’s business as well if Citi acquires it?
In some of these areas we have a preferred status. But definitely Citi can work with other players. With respect to Wachovia, we'll have to wait and see what kind of deal it's going to be and if Citi is going to get all of it or if it will go to Wells Fargo. Till then, I can't say. But even without Wachovia there will be lot of RFPs (request for proposals) were we get preferential status. We also hope to start adding other clients from 2009.
Did you evaluate other captive buys before deciding on Citi?
There were other captives, but we did not pursue them. This is the only captive unit which has end-to-end comprehensive banking business process operations capability. Of all the banking captives in India, Citi's back-office operations are the best.
How do you plan to integrate it within TCS?
We will take it global in the first quarter after the acquisition is completed. In terms of cost structures, there is not much difference at the lower level. There may be differences in specific roles, we will have to work through that. We've spoken to some of the top management teams and they are happy. They will also be working for multiple clients and doing diverse work. The entire top management team is staying back. There is some kind of retention scheme for them.
Oct 10, 2008
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