The Orogen Group, led by former Citigroup CEO Vikram Pandit, has invested $108 million in Virtusa Corp., a global business consulting and IT outsourcing company. As part of the stock purchase, Pandit joins Virtusa’s board, and the company will focus on expanding its services for the financial services vertical.
While Virusa has growth in mind, much of the investment will address debt. Indeed, Virtusa intends to use the proceeds from the sale of its Convertible Preferred Stock to repay approximately $81 million of its senior term loan, as well as for common stock repurchases and general corporate purposes. Virtusa’s Board has approved the repurchase of approximately $30 million of common stock, the company said as part of the announcement.
In addition to the financial backing, Orogen’s financial services expertise is of great value, according to Virtusa CEO Kris Canekeratne. “Orogen’s extensive industry experience and network in banking, financial services and insurance (“BFSI”) and media will be tremendous assets to Virtusa as we execute our industry-leading growth plan,” Canekeratne said in a prepared statement. “Additionally, Vikram is an exemplary leader and his extensive experience and knowledge in banking and financial services will help us strengthen our solutions and services and capitalize on current and new client opportunities.”
Pandit is a 35-year veteran of the financial services industry, Virtusa noted. He began his career in financial services at Morgan Stanley in 1983 and ultimately became president and COO of the company’s institutional securities and investment banking businesses. More recently, he was CEO of Citigroup.
IT Outsourcing & Financial Services
The Orogen investment arrives at a key market inflection point for for Virtusa.
Financial services is the No. 1 vertical for IT spending, and the banking sector will increase its spending at 4.9 percent CAGR from 2016 through 2020, IDC says. Also, the Trump administration’s rollback of Dodd-Frank regulations could speed the development of next-generation lending and financial systems.
On the cybersecurity front, most folks are watching the New York State Department of Financial Services’ (NYDFS) cybersecurity regulation, which went into effect March 1, 2017. The regulation includes multiple staggered deadlines. Each deadline could trigger a new set of IT security spending in the state. Additional states are considering similar mandates.
Risks and Rewards
But there are also major risks ahead. FinTech startups are disrupting traditional Wall Street firms, investment houses, stock brokers and banks. And the risks are growing. Indeed, established financial institutions risk 24 percent revenue loss from FinTech rivals, according to a PricewaterhouseCoopers research report released in April 2017.