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Xchanginghas agreed to buy Indian rival Cambridge Solutions in a deal it hopes will transform it into one of the world's largest business process outsourcers to the private sector.
The deal values Cambridge at an enterprise value of about pound 145m. Xchanging will pay pound 83m for Cambridge's equity, comprising pound 45m in cash and the balance from the issue of 15.2m shares, equivalent to 7.1 per cent of the group's issued capital.
It will also provide welcome relief for independent UK business process outsourcers, who have become increasingly used to being linked with takeovers from larger Indian rivals. Axon, which provides specialist SAP skills, is currently being fought over by Indian rivals Infosys Technologies and HCL.
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David Andrews, chief executive, called the deal "the perfect fit". The group had been considering potential acquisitions in the US and Asia to build scale quickly and the UK group had been attracted by Cambridge's extensive exposure to the US market, particularly the insurance market.
Mr Andrews said that Xchanging's business involved outsourcing complex corporate functions. It usually forms partnerships with other companies and the partner has the option to buy out the remaining share after five years.
Xchanging shares closed up 9p at 249p, while Cambridge shares closed up Rs 2.85 at Rs 59.40.
In spite of turbulent conditions in financial markets, the demand for business process outsourcing has been relatively insulated as large companies look to cut overheads. In July, Aviva, the insurance group, struck a deal with Indian outsourcer WNS Global Services to outsource $1bn (pound 560,000) of back office work.
Xchanging was founded nine years ago and listed on the London Stock Exchange last year. It helps run back-office operations for BAE Systems, Alliance Boots and Lloyd's of London.