IT services major Wipro on Friday announced that it has acquired the technology and services arm of Canada's ATCO group I-Tek for $195 million (Rs. 1,170 crore). Apart from the all-cash deal, the pact also includes Wipro landing a 10-year outsourcing deal wherein it will provide ATCO total outsoucing solutions in Canada and Australia.
The contract will result in annual revenues over $112 million (around Rs. 670 crore) for the next ten years up to December 2024, Wipro announced. Revenues from the deal is likely to start flowing in from the quarter ending September, the company said. This pegs the contract at a cumulative $1.12 billion (over Rs.6,700 crore).
The markets reacted to the early morning announcement positively, with share prices rising by more than 3 per cent, only to settle at an increase of 1.84 per cent at closing time. Anand Padmanabhan, Chief Executive-Energy, Natural Resources and Utilities, Wipro, said this is one of Wipro's largest outsoucing deals. This is the second acquisition in the energy and utilities segment; in 2011 Wipro had bought the U.S.-based Science Applications International Corporation's oil and gas practice for $150 million.
Over 550 employees of ATCO I-Tek (out of 700) will join Wipro. The IT services arm of Alberta-based ATCO has been operations for the past 15 years, with clients in both North America and Australia. With this, Wipro is looking expand its presence in markets such as Canada as well as its stronghold over the segment. Mr. Padmanabhan said that both Canada and Australia are critical geographies for Wipro, which was looking to increase local presence.
“This would help us add new customers in these geographies and across business segments. 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,” he said.
Wipro has, in recent years, opted to go the inorganic route for expansion. Barely a year ago, it acquired Opus Capital Markets Consultants for $75 million. Early this year, Wipro also announced that it had doubled its minority stake in analytics solutions firm Opera, barely a year after it had acquired a 6.5 per cent stake. Another acquisition earlier in the analytics space was an all-cash deal in 2012 where it purchased Australian firm Promax Applications Group. The current two-way pact, where a contract is bundled along with an acquisition, is more comparable to its 2008 buy where it acquired Citgroup's IT arm, following which it won a $1 billion outsourcing deal.
The energy and natural resources vertical has been Wipro’s fastest growing division over the past few years. In 2013-14, energy, natural resources and utilities accounted for 16 per cent of the company’s revenues as against 15 per cent in the previous fiscal.
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.”
