Tuesday August 18, 06:40 PM

INTERVIEW - VanceInfo eyes China buys and new projects

By Melanie Lee

SHANGHAI (Reuters) - China's leading IT outsourcing firm VanceInfo Technologies is looking at fresh domestic acquisitions to boost its presence in the backroom operations of the financial industry, as firms in its key markets the United States and Europe begin to recover.

David Chen, president of VanceInfo, told Reuters in an interview that his firm was in talks to buy a few Chinese banking software companies valued between $2-$5 million.

In July, VanceInfo brought Hong Kong-based customer relationship services firm TP Corp. The acquisition enabled the company to gain access to some key accounts in Hong Kong, China and Southeast Asia.

"It is opportunity driven, we are very selective and very cautious in terms of the M&A," Chen said, declining to give a timeframe for the completion of the acquisitions.

VanceInfo was also looking to close deals with potential new customers from the United States and European markets worth between $5-$10 million each.

VanceInfo may provide application software development services for those new projects, Chen said, declining to give a projection as to when the deals would be signed.

"We are working very hard to make sure that our U.S. and European revenue is pretty strong over the next few years," he said.

"The end of the year will be a very crucial time for us, because that's when our U.S. and European customers figure out what the budget allocation is for next year," Chen said.

VanceInfo reported its second-quarter results last week. The firm's net profit rose 47.5 percent to $5.2 million with net revenue coming in at $34.6 million.

VanceInfo said earlier it expected its third-quarter revenue to be at least $38 million and its full year revenue to be $140 million.

In the quarter, 41.5 percent of the firm's net revenue came from companies headquartered in the United States. China headquartered firms accounted for 37.2 percent of revenues. The rest came from Europe and Japan.

Looking ahead, Chen said the optimal revenue split for the firm was about 70 percent from overseas markets and 30 to 40 percent from the China market. This was because the United States and European deals were much bigger in value and represented healthier cashflow opportunities.

VanceInfo counts multinational firms such as Citibank, IBM and Microsoft Corp among its clients.

Over the past three years, China's top four outsourcing companies have grown 21 percent annually, but that was only half the growth rate of India's top four companies, according to McKinsey.

VanceInfo competes domestically with Neusoft Corp and globally with India's Infosys (INFOSYS.BO : 2701.2 0), Tata Consultancy (TCS.NS : 818 +21.05) and Wipro Ltd (WIPRO.NS : 728.65 +18.6).