The U.S.'s largest bank Citigroup (NYSE: C) announced its intention to acquire BISYS Group (NYSE: BSG) for $1.47 billion. The deal is expected to close in the second half of the year. It's a smart move for Citigroup. The company has been attempting to lead the industry in servicing and administrating several types of hedge funds, mutual funds etc.

Bisys Group built its business over the years by offering its customers the total package of administrating and organizing all necessary paperwork and reporting forms for its fund holders. Recently, Bisys Group has fallen on hard times as its business has stalled. In late 2002, the shares were trading as high as $37 and reached a low of $7.92 in the past 52-weeks. The take-out price of $11.85 seems quite fair.

Citigroup is making inroads in the servicing aspects to the alternative-hedge fund market. The hedge fund industry has several thousand players, with new ones opening every month. The offshoot for Citigroup is that Bisys Group has sophisticated technology and systems that will fit right in to the Citigroup systems. Any transition issues should be minor.

Bisys Group has two major divisions, insurance services and the investment services division. Citigroup will immediately sell off the insurance services division to J.C. Flowers & Co. thus reducing the acquisition cost to $800 million. There will be no effect to Citigroup's earnings estimates for 2007 or 2008. The deal is neutral to earnings.

Citigroup was rumored to be looking at Bisys to expand its tentacles into the lucrative services industry. It's a good, strategic move for Citigroup as it expands its foothold in the services sector.

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.