WNS to acquire Aviva's BPO unit for $228 million, secures $1 billion multi-year contract

According to WNS, it would acquire all the shares of AGS and would take control of the company's operations in Bangalore, Pune, Chennai in India and Colombo in Sri Lanka. About 5800 employees would be absorbed by WNS, pursuant to the acquisition. The deal is being touted as one of the largest buyouts of a foreign captive BPO in India.

The funds for the acquisition would be raised through a mix of internal accruals and debt, the company said in a statement. While $200 million would be raised through a bank loan facility, buyout firm Warburg Pincus, which is the majority shareholder of WNS, would make an equity contribution of $30 million, sources close to the deal said.

Pursuant to the acquisition, Aviva would become the biggest client of WNS, which would provide a complete spectrum of life and general insurance processing functions, including policy administration and settlement, finance and accounting, customer care and other support services, to Aviva's Canadian, UK and Irish businesses till the end of 2016.

Part of the outsourced job from Aviva would be subcontracted by WNS to two other Indian BPOs - EXL and 24/7 Customer, sources said.

"By combining the sale with a long-term master services agreement, Aviva will be able to realize the value of the offshoring operations it has been developing since 2003, while continuing to benefit from the expertise that it has developed in that time and ensuring protection against future inflation and adverse changes in foreign exchange rates," Aviva said in a statement.

"We're proud of the significant offshoring capability that we've built over the past five years and we remain firmly committed to offshoring," said Cathryn Riley, chairperson, AGS.

"After an extensive review, we've chosen one of our current suppliers to be our long-term partner, allowing us to build on the strength of our existing relationship to increase the flexibility and cost-certainty within our operation," Riley said.

"By transferring our captive and third-party operations to WNS, Aviva benefits from WNS' ability to bring us new perspectives and continue our focus on customer service excellence," she said.

"WNS is a great partner; it understands our business and has demonstrated its commitment to helping us develop our customer experience and shared services model, which will make an important contribution to the delivery of our 'One Aviva, twice the value' vision," she added.

WNS has been providing BPO services to Aviva since 2004.

"With this acquisition, WNS solidifies its position as a premier offshore BPO provider. Aside from a large BPO contract, this significantly accretive acquisition promotes our strategy of expanding market share in target industries, greatly extends our scale, and bolsters our service offerings - not just in the insurance industry, but across all our businesses," said Neeraj Bhargava, CEO, WNS Global Services, said.

"Aviva will be an active partner during the transition period, and we are confident that our integration plans will result in a smooth transition. We also see significant potential to grow our business with Aviva, not only outside the UK, Canada and Ireland, which AGS serves today, but also in new high growth areas such as analytics," he said.

"Insurance is in general a stable industry in recession. It's a good industry to do business in these times and Aviva Global Services gives us the credibility to expand further in the industry," Bhargava said.

The BPO industry, Bhargava said, "offers an addressable market of $20-30 billion dollars by 2012."

Insurance is "one of the most attractive industry segments to target for BPO services. This acquisition enhances our leadership position in the insurance BPO segment," he said.

This is the third major acquisition made by WNS this year. Last month, it acquired Business Applications Associates and in April, it acquired a British auto insurance claims-processing services provider, Call 24/7 Ltd.

As a result of the contract and acquisition, WNS has also revised its revenue and net income guidance for FY09. The company now expects its revenues for the current fiscal year to be between $425 million and $435 million as against earlier projection of $373 million and $378 million.

Net income, the Mumbai-based company said, is expected to be between $46 million and $49 million, up from the previous guidance of between $44 million and $46 million.

"This acquisition adds immediate value to our shareholders as it is accretive on both net income margin and EPS. It gives us significant scale and an industry leadership position to pursue growth-oriented opportunities," said Alok Misra, CFO, WNS Global Services.

In NASSCOM's report titled, "FY08 Revenue Performance and FY09 Forecast for the Indian IT Software and Services Sectors," WNS was voted the No.2 BPO company in India after Genpact.

WNS, which draws about half its business from British and European operations, has present employee strength of over 17,000.

Aviva's sale of its Indian subsidiary to WNS is in line with the strategies of other multinational companies like British Airways and GE Capital, which spun off their Indian back-office subsidiaries, as the need for direct control over the operations is reduced with the BPO industry becoming more mature.

Citi has also put its Indian BPO unit, Citigroup Global Services, on the block and WNS and IBM-Daksh have been cited by local media as lead contenders in the acquisition race.

ABOUT INDIA'S IT-BPO INDUSTRY

India's $64 billion IT-BPO industry employing 2 million people, accounts for 5.4 percent of the country's gross domestic product (GDP). The industry, which grew in the mid-1990s and helped the nation's economy surge to an annual growth rate of nine percent, is expected to increase its workforce to 8 million by 2018.

NASSCOM or National Association of Software and Services Companies, the consortium that serves as the apex body of the Indian IT software and BPO industry, has estimated that the Indian business process outsourcing, or BPO, industry provided direct employment to 704,000 professionals in FY 2007-08, and has projected that it will generate an additional 1.4 million jobs by 2010.

The lobby group projected earlier this month that India's software and services exports would witness a slowdown in growth and rise between 21-24 percent to around $50 billion in the current fiscal year (FY09).

According to NASSCOM's report titled, "FY08 Revenue Performance and FY09 Forecast for the Indian IT Software and Services Sectors," the IT-BPO sector grew by 29 percent during the fiscal year ended March 31, 2008 (FY08) to $40.4 billion but would moderate during the current fiscal year due to the downturn of the US economy, global food and oil crisis and currency fluctuations.

Meanwhile, total revenues from the IT-BPO sector, including from domestic business, would rise between $62-64 billion in FY09, up from $52 billion in FY08, NASSCOM said.

Though India's large pool of English-speaking IT workforce and cheaper wages have kept it ahead of its rivals like China, Philippines and Vietnam, and helped attract business from western firms such as ABN AMRO AAH.AS, Nortel and Airbus, yet, global financial turmoil and economic slowdown in the US have taken their toll on India's IT-BPO sector.