Fidelity National Financial has signed a $150 million outsourcing contract with Covansys, a global provider of strategic outsourcing and integration services that has operations in India, and purchased a 29 percent equity stake in the company.
The agreement will make Covansys Fidelity’s “primary strategic provider of outsourced information technology services,” according to a Covansys statement today. The contact is expected to generate $150 million in revenues for Covansys over the next five years.
Fidelity Chairman and CEO William P. Foley II said the deal was an important strategic investment for the company.
“Prior to this investment, Fidelity’s global outsourcing activities consisted of project-based, contractual relationships with several offshore service providers. While the absolute cost savings in offshore outsourcing are compelling, we have been searching for a strategic partnership that not only optimizes our technology delivery efforts from a cost, quality and time-to market perspective, but also improves our competitive advantages in generating incremental revenue from our financial institution customer base. With this significant investment in Covansys and our representation on the board of directors, we have found an outstanding U.S. based IT services partner with well established operations in India that allows FNF to accomplish these objectives,” Foley said in the Covansys statement.
Covansys employed more than 2,500 “billable professionals” at development centers in Chennai, Mumbai and Bangalore, India, as of Dec. 31, 2003. The agreement will Fidelity will enable the company to add additional scale to those operations. The outsource provider also aims “to develop innovative information technology outsourcing solutions for its clients that will establish the benchmark for best practices in the financial services sector,” according to its statement.
Covansys CEO Martin C. Clague said the strategic partnership gives Covansys an opportunity to develop “innovative full-service solutions that integrate technology, services and processes for many of the biggest names in the financial services industry” and “significantly accelerate (Covansys’) penetration of this sector.”
Covansys will issue approximately 8.7 million shares of common stock to Fidelity at a price of approximately $104 million, plus four tranches of warrants, each of 1 million additional shares of
Covansys common stock priced at between $15 and $24. Fidelity also will purchase approximately 2.3 million Covansys common shares from Covansys co-chairman and founder Raj Vattikuti.
After the effect of the transactions with Fidelity and a recapitalization agreement with investment funds managed by CD&R, Fidelity will own 29 percent of Covansys’ outstanding common shares, Vattikuti will own 17 percent and Clayton, Dubilier & Rice, a private equity investment firm, will own 5 percent.
Fidelity is the nation’s largest title insurance company and also provides such real estate-related services as escrow, flood and tax certifications, merged credit reports, property valuations and appraisals, default management, relocation services, flood, homeowners and home warranty insurance, exchange intermediary services, mortgage loan aggregation and fulfillment, multiple listing services software, mortgage loan origination software, collateral scoring analytics and real property data. The company is also one of the world’s largest providers of information-based technology solutions and processing services to financial institutions and the mortgage and financial services industries. Fidelity’s total revenue was $7.7 billion, earnings were $860 million and cash flow from operations was nearly $1.3 billion last year.