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News >> Technology >>
BPO space energetic with mergers and IPOs'
By agencies
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Tuesday, 02 August 2005, 19:30 IST
NEW DELHI: The business process and knowledge process outsourcing industry seems poised for a hectic round of consolidation. The total value of mergers and acquisitions (M&A) and initial public offerings in the Indian BPO and KPO industry could touch $3-5 billion between 2005 and 2010, with large transactions grabbing a chunk of the pie, according to an Evalueserve study.
"The Indian outsourcing industry is expected to witness an increase in mergers and acquisitions and IPO activities, which will lead to a significant consolidation in the mushrooming BPO industry, especially among the small and medium sized players. Very large BPOs are likely to capitalise on favourable multiples currently being offered in the industry, whereas small to medium players will either continue to exist as focused niche players or be acquired by larger BPOs or western companies," the study released today said.
The study said the drivers for M&A activities in the country are expansion in geographic markets and additional lines of businesses, multi-location delivery capability, access to a lower cost base and acquisition of complementary skills. Other factors include availability of capital through private equity firms and capital markets, pressure on private equity firms for exit of investments and complexity reduction for MNC operations.
The study estimated that seven to 10 large BPOs would use the IPO route between 2005 and 2010, and the value of these companies could aggregate $2-3 billion. It predicted five to 10 spin-offs of captives during the same period with immediate or eventual acquisition by a large BPO , and pegged their value at $1-1.5 billion.
In addition, there will be 80-100 deals with large BPOs acquiring small and medium sized niche BPOs and KPOs, the study said.
However, it also predicted significant challenges in making these transactions successful including post-merger cultural differences between players. "Turning spun-off captives into successful vendors in the open market will be a major cultural challenge. Valuation hurdles and key man risks may be major barriers for acquisition of smaller BPOs/KPOs, and finally IPOs conducted for financial reasons only without strategic rationale may become very costly in terms of actual costs and opportunity costs," the study said.