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BPOs lead M&A race in India
By siliconindia
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Wednesday, 19 December 2007, 01:30 IST
Bangalore: BPOs are leading the race of mergers and acquisitions (M&As) in the Indian IT space compared to IT services firms, triggering a high growth potential in the M&A segment. Some of the recent M&A deals have been Infosys and Philips BPO, Blackstone and Intelenet while there are reports about Citigroup and Aviva looking at exiting their captive BPO operations in India, reported The Economic Times.
"The BPO segment has the potential to win large multi-year contracts and the service providers themselves are looking at the inorganic option," says Avinash Vashistha, CEO, Tholons, an offshore advisory firm.
Even the Nasscom-McKinsey study, which has projected $60 billion IT or ITeS exports from India by 2010 will see the contribution of BPO segment touching $25 billion from the FY07 level of $8.3 billion. On a comparative basis, IT services are expected to rise from $18.1 billion to $35 billion.
According to Harish HV, partner, Corporate Finance, Grant Thorton, Indian BPO companies are 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 an increased 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.
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, says Vashistha.
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.