The multi-year deal Infosys won from US investment firm Vanguard is worth $1.5 billion, say sources close to the development. This will perhaps make it the biggest deal Infosys has ever signed. Previously, some believed it was slightly under a billion dollars. The sources also say the scope of the work could be extended to 10 years, with the contract value rising to over $2 billion.
The mammoth deal explains a good part of the surge in the company’s share price on Wednesday and Thursday last week, and the confidence the company had in reinstating its revenue guidance for the year.
Billion-dollar deals are rare for Indian IT. Infosys won the deal in a hotly contested battle with Wipro in the final lap. Other serious contenders in the race included TCS and Accenture. Infosys is said to have set up a 3,000-seater facility in Electronics City in Bengaluru to service the deal. It combines BPM services and digital transformation work to take Vanguard’s record-keeping services onto a cloud-based platform. The company will initially have 300-400 people working out of the facility and it will ramp up gradually, based on the release timeline, sources said.
The company won $1.7 billion worth of deal in the April-June quarter, but Infosys said this did not included the Vanguard deal.
Vanguard, through the funds it manages, holds a nearly 3% stake in Infosys. Infosys is also very strong in the retirement services space in the US, serving half of the top 20 such firms. Vanguard manages more than $1.3 trillion in DC (defined-contribution) assets – plans where employers and employees make regular contributions to secure the latter’s retirement days.
Infosys said around 1,300 Vanguard roles supporting the full-service record-keeping client administration, operations, and technology functions will transition to Infosys.
The initial deal prospecting is said to have started in the beginning of the year. A Vanguard team visited its Indian and MNC IT partners to access vendor capabilities and maturity of the digital services. Infosys president and BFSI head Mohit Joshi, BFS business head in North America Dennis Gada, president & delivery head Ravi Kumar, CFO Nilanjan Roy, cloud & infrastructure business head Anant R Adya, and BFS sales vice-president Nageswar Cherukupalli were those who brought the deal to fruition.
Last year, Infosys’s Verizon contract size grew to over $1 billion and the client is said to have given good references. Under CEO Salil Parekh, the company also has done major asset/people-takeover deals, including a recent one with ABN AMRO.
Analysts say it’s tough to handle such large vendor consolidation deals. “An underlying risk on some large deals is difficulty in achieving the delivery and cost expectations and then experiencing margin shortfalls,” said Rod Bourgeois, head of research in US-based DeepDive Equity Research.