Infosys buys Citi out of Progeon for $115mn

Deal values Progeon around $500 million.

Infosys Technologies will pay Citigroup $115.13 million (Rs 518 crore) in cash to buy out its 23 per cent 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 per cent.

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 per cent 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 per cent compared with $14.5 million in the corresponding quarter last year.