Tuesday, November 10, 2009

EXL American Express Deal Analysis

Nasdaq listed EXL has signed a deal with American Express to acquire the global travel service center operations located in Gurgaon, India, from American Express Business Travel (AEBT) for approximately $30 million. The deal follows the trend of sell off of technology captives by large multinationals. For a seasoned outsourcer like American Express, you would think that this would have happened sooner than now.

Despite being a big outsourcer Amex has always had a strong internal IT department. This department is responsible for outsourcing and vendors get little direct access to business (except IBM)

Now, for EXL, this is certainly a step up, both in terms of deal size and that it gives them a marquee customer in the travel industry as well as ready access to new capabilities that they can put to use in other deals.

However, I am surprised by the fact that we did not hear of IBM vying for this. IBM is a deeply entrenched player in Amex’s technology operations (Credit Cards and Travel). It even provides office supplies, or at least used to a few years ago, to Amex. This effectively shuts out IBM from at least this part of the business for the next 8 years. I would not be surprised if IBM attempts to buy EXL at some point in the near future.

From my time at Amex, I remember that once one of the VPs there had given a contract to a small vendor instead of IBM, to diversify risk and also perhaps to make a point that IBM needs to improve its service. However, by next quarter IBM came back in and took over this small company.

1 comment:

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