Midsize BPOs with shrinking margins, look for buyers
The bankers said that the number of BPO firms approaching them has increased by two to four times in the past four months. They declined to name the firms, citing confidentiality clauses. But according to them, most of these are BPO firms offering basic services to companies within India, unable to compete with larger rivals that have graduated to more complex outsourcing jobs.
"We built core competence in telecom and financial services, but now we are struggling. Clients are asking for end-to-end solutions," said Gopal B. Iyer, Principal Investor and President of TriNet Solutions, a 2000 seat BPO firm based out of Delhi that is in talks with potential buyers for a complete buyout.
Private equity firms had refused funding saying the company was too small to invest in. Midsize BPO firms with 500-3000 seats are hardly equipped to take on that kind of competition from rivals 3-10 times their size. Besides, profit margins have been thinning as salaries and expenses rise.
A voice-based call centre in Kolkata that has given a mandate to an investment banker to find a buyer, says it cannot scale up its operations because of thin profit margins of 2-3 percent. "Surviving the way we are right now, we cannot bring economies of scale on our own. We are not desperate, but becoming part of a bigger entity seems like a sensible idea to us," said a board member of the firm, requesting anonymity to avoid disturbing his clients and employees.
According to Mint, foreign companies have been scouting for BPO acquisitions in India for some months now, but no deal has been struck because of a lack of specific synergies. Consolidation in the industry, then, could be driven by large domestic companies acquiring the midsize firms.
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