21st April 2006: Infosys Technologies will pay Citigroup $115.13 million (Rs 518 crore) in cash to buy out its 23% stake in Progeon, the BPO subsidiary of Infosys.
Citigroup has made good returns on its investment as it had paid $20 million in 2002 to acquire the 8.75 million Progeon shares. This deal values Progeon at close to $500 million.
Infosys is paying close to six times Progeon's top line of $85.4 million for the year ended March 31, 2006. Progeon posted a net profit of $21 million, which gives it the industry's best margins of 25%. The transaction is expected to be completed by July 2006.
Infosys’ decision to buy out Citigroup from Progeon and make it a wholly owned subsidiary is part of a trend among large Indian infotech players to offer a full-range of services covering the entire information technology-BPO spectrum under their own brands.
Third-party BPO firms are becoming fewer and Indian IT firms are finding it attractive to have in-house BPO capability, which allows them to cross-sell their products. This has been very useful from the point of view of client acquisition for the BPO business.
Progeon's sales increased almost 100% to $85.4 million in 2005-06 compared with $42.9 million during 2004-05. For the fourth quarter, its top line stood at $24.4 million, up 69% compared with $14.5 million in the corresponding quarter last year.