Growth potential keeps BPOs in M&A action

BANGALORE: BPO entities have been at the forefront of large mergers and acquisitions (M&A) in the Indian IT space compared to IT services firms. Some of the recent M&A deals have been Infosys and Philips BPO, Blackstone and Intelenet while at the same time there are reports about Citigroup and Aviva looking at exiting their captive BPO operations in India. This predominance of BPOs in the M&A action has got lot to do with the growth potential in the segment. Avinash Vashistha, CEO, Tholons, an offshore advisory firm, says, the BPO segment has the potential to win large multi-year contracts and the service providers themselves are looking at the inorganic option. Even the Nasscom-McKinsey study, which has projected $60 billion IT/ITeS exports from India by 2010 will see the contribution of BPO segment touch $25 billion from the FY07 level of $8.3 billion. On a comparative basis, IT services is expected to rise from $18.1 billion to $35 billion. According to Harish H V, partner, corporate finance, Grant Thorton, Indian BPO companies are very process and technology driven and so they would look at leveraging the delivery capability by taking over more people. “Indian companies have significant expertise in managing large number of human resources,” he added. At the same time, there has been increasing interest by private equity (PE) players in the BPO segment. Blackstone, the global PE giant, bought the majority stake in Intelenet for an estimated $200 million. Mr Vashistha says, PEs like this kind of business as it has got the ability to scale very fast unlike the conventional IT services in India, which have become very mature. Mr Harish says, Indian IT services companies have grown their business organically and would not look at a large acquisition as there will be a lot of integration issues. At the same time, there has been increasing number of sell outs by BPO captives in India with the third party service providers evincing interest in taking over the business. For example, the Infosys and Philips BPO deal valued at $250 million is a long term contract with the potential of getting further business. Sudin Apte of Forrester says, the gameplan of companies like Infosys and TCS has been to look for a solid technology platform in BPO i.e., leverage it from one client and expand it to 10 other clients.

Source: http://economictimes.indiatimes.com/Infotech/Growth_potential_keeps_BPOs_in_MA_action/articleshow/2626667.cms