Wipro has entered into a multi-million dollar dual pact with ATCO through which India’s third largest software services company will provide a complete suite of outsourcing solutions to the Canadian firm as well as acquire its IT services arm.
The Bangalore-based firm today said it signed a series of Master Services Agreements with ATCO under which Wipro will acquire ATCO’s IT subsidiary for an all-cash consideration of CAD 210 million (USD 195 million or over Rs 1,176 crore). The sale is expected to be completed in the third quarter of 2014.
Besides, Wipro has also secured a 10-year IT deal with ATCO for providing outsourcing services, which will result in annual revenues of over CAD 120 million (USD 112 million or over Rs 675 crore) for Wipro for the next 10-years.
Alberta-based ATCO Group is one of Canada’s premier corporations. As a USD 16 billion enterprise with more than 9,800 employees, ATCO Group is engaged in structures and logistics, utilities, energy and technologies.
As part of the alliance, Wipro will provide outsourcing solutions, including infrastructure management and application development and maintenance, to ATCO in Canada and Australia for 10 years upto December 2024.
“The arrangement is projected to result in revenues of over CAD 120 million (USD 112 million or over Rs 675 crore) to Wipro annually…We have traditionally had a strong position in the Utilities space in Europe and this engagement provides momentum to our business in Canada and Australia,” Wipro Chief Executive (Energy, Natural Resources and Utilities) Anand Padmanabhan told reporters on a conference call.
In 2011, Wipro Technologies had acquired the global oil and gas IT practice of Science Applications International Corporation for an all cash deal of about USD 150 million.
The energy and natural resources vertical has been Wipro’s fastest growing division over the past few years. In FY2013-14, energy, natural resources and utilities accounted for 16 per cent of the company’s revenues as against 15 per cent in the previous fiscal.
The alliance with ATCO will also enhance Wipro’s capability to create, nurture and tap local talent to power its growth journey in Canada and Australia, Padmanabhan added.
ATCO’s subsidiary, ATCO I-Tek, will become a part of Wipro after the closure of the deal, which is expected to be completed in this quarter.
On the sale of its IT services arm, ATCO said: “The decision to outsource ATCO’s IT services was due in part to increasing regulatory challenges faced by ATCO’s utility companies when applying to the Alberta Utilities Commission to include IT costs, provided by ATCO I-Tek, for recovery in customer rates.”
By competitively outsourcing its IT services, ATCO is addressing the concerns expressed by the Alberta Utilities Commission, it said in a statement.
About 500 employees from Canada and 50 from Australia will be transferred to Wipro as part of the deal with ATCO.
Wipro will also acquire shares of ATCO I-Tek, including current contracts and employees, as well as the assets of ATCO I-Tek Australia as valuable resources to provide IT services ATCO requires and to serve as a launching point for Wipro’s expansion in Canada and Australia, ATCO said.
ATCO I-Tek will continue to operate as a subsidiary under Wipro.
“The sale is expected to close in the third quarter of 2014 subject to customary closing conditions. Aggregate proceeds from the sale are expected to be approximately CAD 210 million,” it added.
“ATCO I-Tek has over 700 employees. They will retain a few employees for BPO part of the business,” he said.
Over the years, Indian IT firms have bought captive IT units of large customer organisations and gained access to large outsourcing contracts in the process.
In 2008, Wipro had bought the IT arm of Citigroup in India for USD 127 million, while TCS acquired the India-based captive unit of Citigroup Global Services Ltd for USD 505 million.
“The employees coming on board have extensive domain knowledge and will help us grow business,” Padmanabhan said.