MphasiS To Buy AIG's Software Unit In All-Cash Deal

BANGALORE -(Dow Jones)- MphasiS Ltd. (526299.BY) said Wednesday it agreed to buy an American International Group Inc. (AIG) unit in India that currently provides software services exclusively to the U.S.-based insurer.

Bangalore-based MphasiS didn't say how much will it pay for AIG Systems Solutions Pvt. Ltd., but Gopinathan Padmanabhan, head of its application-services business unit, said it will be an all-cash deal and "will be funded internally."

As of April 30, MphasiS - majority owned by Hewlett-Packard Co.'s Electronic Data Systems Corp. - had about INR3.56 billion ($74.06 million) in cash and bank balances, including short-term investments, it had said in May.

In recent past, Indian technology companies have been buying the local captive units of crisis-hit global financial firms. In most cases, the deals come with guaranteed business from the company selling the units, making them attractive for the acquirers.

In October, Tata Consultancy Services Ltd. bought the back-office unit of Citigroup Inc. for $505 million, while in December, Wipro Ltd. acquired another captive unit of Citigroup for $127 million.

After completing the acquisition, AIG Systems will become part of the application-services business unit of MphasiS and offer services to other insurers as well, Padmanabhan told Dow Jones Newswires.

The acquisition will help MphasiS gain market share in the insurance domain, which is part of the banking, financial services and insurance, or BFSI, segment that accounts for about 40% of the company's total revenue.

"It (the buy) is definitely going to be an accretive business for us," Padmanabhan said. "Overall we expect the (revenue contribution of) BFSI segment to go up."

He didn't provide details on the revenue contribution from the acquisition, saying the company is in a quiet period ahead of its earnings release next week for the fiscal third quarter ended July 31.

Analysts expect the deal to add $30 million to $40 million of revenue per year. "MphasiS should get some guaranteed business in return" from AIG for buying the unit, a Mumbai-based analyst said, asking not to be named.

For the quarter ended April 30, MphasiS posted revenue of INR10.49 billion.

The acquisition will bring in roughly 850 AIG employees to MphasiS, Padmanabhan said. MphasiS already has 33,810 employees across its operations.