Wipro to buy Health­Plan ser­vices for $460 mil­lion

The Pak Banker - - COMPANIES/BOSS -

Wipro Ltd will spend $460 mil­lion to buy Health­Plan Ser­vices, a Florida, USbased tech­nol­ogy firm that of­fers so­lu­tions to health in­sur­ance firms, mak­ing it the third buy­out by the Ben­galuru-based soft­ware ser­vices firm in less than three months.

The pur­chase is the fourth ac­qui­si­tion by Wipro, In­dia's third largest in­for­ma­tion tech­nol­ogy (IT) firm, since the be­gin­ning of the fis­cal in April 2015. Sig­nif­i­cantly, the flurry of buy­outs sug­gests Wipro's new chief ex­ec­u­tive of­fi­cer, Abidali Z Neemuch­wala, is look­ing at merg­ers and ac­qui­si­tions to help achieve the am­bi­tious tar­get of more than dou­bling Wipro's rev­enue to $15 bil­lion by 2020.

Since Neemuch­wala joined Wipro as chief op­er­at­ing of­fi­cer in April last year, Wipro has spent over $760 mil­lion in mak­ing th­ese four buy­outs. The ac­qui­si­tions are be­ing made at a time when Wipro, which recorded rev­enue of $7.08 bil­lion for the year ended 31 March 2015, is ex­pected to grow at best 4.2% in this fis­cal, the slow­est since 2009-10 (when rev­enue ex­panded 1.6%).

"The part­ner­ship with Health­Plan Ser­vices po­si­tions Wipro to par­tic­i­pate in the shift of the US health in­sur­ance in­dus­try to­wards a con­sumer-cen­tric busi­ness model," said Jef­frey Heenan Jalil, se­nior vice-pres­i­dent and head of health­care life sci­ences and ser­vices busi­ness. The shift Jalil is re­fer­ring to are the op­por­tu­ni­ties cre­ated for do­mes­tic tech­nol­ogy out­sourc­ing firms af­ter US Pres­i­dent Barack Obama's ush­ered re­forms to pro­vide af­ford­able health­care to unin­sured Amer­i­cans by the Af­ford­able Care Act law, or Oba­macare.

Af­ter Oba­macare, peo­ple in the US have to buy in­sur­ance them­selves rather than em­ploy­ers, thereby mak­ing tech­nol­ogy ven­dors, in­clud­ing Cog­nizant Tech­nol­ogy So­lu­tions Corp. and Tata Con­sul­tancy Ser­vices Ltd, re­ceive more out­sourc­ing work from in­sur­ance mar­keters and hospi­tals. In an all-cash deal, Wipro will buy Health­Plan Ser­vices from Wa­ter Street Health­care Part­ners, a pri­vate equity firm, which bought the com­pany from its then man­age­ment in 2008.

Wipro, which had $4.63 bil­lion in cash at the end of De­cem­ber, did not say how it will fi­nance the trans­ac­tion. "The trans­ac­tion is yet to close. Our choices of sources will be driven with the ob­jec­tive of main­tain­ing an op­ti­mal cap­i­tal struc­ture," said a com­pany spokesman. Health­Plan Ser­vices was founded in 1970 and recorded a rev­enue of $223 mil­lion in 2015. Wipro ex­pects to close this ac­qui­si­tion in the com­ing two-three months, im­ply­ing that the com­pany ex­pects full rev­enues from the buy­out from the Ju­lySeptem­ber pe­riod of this year.

"It is the busi­ness model of the fu­ture be­cause of the op­por­tu­nity in the health­care space and we are ex­cited over­all," Jatin Dalal, Wipro's head of fi­nance, said in a con­fer­ence call late on Thurs­day evening. To be sure, Wipro's prof­itabil­ity in its health­care unit, which brings about $800 mil­lion in busi­ness, will take a hit of 50-80 ba­sis points on ac­count of amor­ti­za­tion costs re­lated to the lat­est buy­out. One ba­sis point is one-hun­dredth of a per­cent­age point. But Dalal down­played this neg­a­tive im­pact, say­ing the com­pany has levers to im­prove prof­itabil­ity in the com­ing years.

"This ac­qui­si­tion is not about im­prov­ing prof­itabil­ity. This is about in­creas­ing our pres­ence in the health­care space, about get­ting a busi­ness model that is part of our vi­sion" Some ex­perts be­lieve Health­carePlan Ser­vices will help Wipro to grow its busi­ness divi­sion. "The ac­qui­si­tion of Health­carePlan Ser­vices adds a fron­tend plat­form and ca­pa­bil­ity that was miss­ing from Wipro's health­care op­er­a­tions so­lu­tion set, and moves it in the di­rec­tion of en­abling an end-to-end health­care ar­chi­tec­ture that pro­vides a more com­pre­hen­sive view of mem­bers," said Bar­bra Sheri­dan McGann, ex­ec­u­tive vice-pres­i­dent, busi­ness op­er­a­tions re­search at HfS Re­search, an out­sourc­ing-re­search firm.

In De­cem­ber, Wipro first spent $78 mil­lion to buy Cel­lent, a Ger­man tech­nol­ogy com­pany that im­ple­ments and main­tains SAP (sys­tems ap­pli­ca­tions and prod­ucts) soft­ware for clients in au­to­mo­bile and man­u­fac­tur­ing seg­ments, and later bought a se­cu­ri­ties pro­cess­ing and fund ad­min­is­tra­tion ser­vices provider, Vi­teos Group, for $130 mil­lion. Cel­lent had $92 mil­lion in rev­enues at the end of De­cem­ber 2014, while Vi­teos Group had $26.5 mil­lion in rev­enue at the end of March last year.

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