Very large BPOs are likely to go the IPO way, capitalising on favourable multiples
currently being offered by the industry, while the small to medium-size players
will either continue to exist as niche players or be acquired by larger BPOs or
western companies.
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Increase in M&A and IPO Activities Predicted for Indian BPO and KPO Industries
Top players will dominate the industry with a significant reduction in the numbers
of BPO vendors and captives by 2010
New Delhi – 29 July 2005: According to a study by Evalueserve, the Indian outsourcing
industry is expected to witness an increase in mergers acquisitions (M&A) as well
as IPO activities, with the total value of deals estimated to be as high as USD
3-5 billion during 2006-10. This will lead to a significant consolidation in the
BPO industry, especially amongst the small and medium-size players. Very large BPOs
are likely to go the IPO way, capitalising on favourable multiples currently being
offered by the industry, while the small to medium-size players will either continue
to exist as niche players or be acquired by larger BPOs or western companies. Further,
it is expected that there will be an increase in spin-offs and the eventual acquisitions/IPOs
of captives. These activities will be driven primarily by the need for expansion,
both in terms of geography as well as lines of business, developing multi-location
delivery capability, gaining access to a lower cost base, the acquisition of complementary
skills, the easy availability of capital through Private Equity firms and capital
markets, and the pressure on private equity firms for exit of investments.
The key findings of the study, which maps the M&A trend in the BPO and KPO industries
in India, include:
• 7-10 large BPOs are expected to use the IPO route between 2005-10
• 5-10 spin-offs of captives of foreign companies during the same period,
which are further expected to be acquired by large BPOs or take the IPO route
• A large number of deals involving large BPOs acquiring small and medium-size
niche BPOs and KPOs
The study identifies several trends and drivers for M&A and IPO activities in
the Indian BPO and KPO industries:
• MNCs providing outsourced services acquiring established large or mid-size
BPO players or small niche BPO and KPO players: To quickly establish an India operation,
thereby gaining access to the low cost base in India
• Large BPOs acquiring stake in specialty BPO and KPO firms having expertise
in a niche areas: To increase their service offerings (one-stop shop concept) and
strengthen their existing line of business
• Large IT companies acquiring BPO/KPO: To leverage their existing customer
base in IT for BPO and KPO activities
• Indian BPOs acquiring western companies: To have better client touch-points
and spread their business across geographies.
• Private Equity-funded BPO firms taking the IPO or trade sale route: As
an exit option for the private equity firms.
• Independent BPOs taking the IPO route: As a means to raise capital for
expansion and growth plans.
• Western companies spinning-off their captives: To reduce the complexity
of operations after having realised the limitations of captives, which are non-core
to their focus areas
However, the study also reveals that ensuring the success of these transactions
will be a major challenge for companies. These challenges would be in the form of
the cultural mis-match between the players’ post-merger (e.g., turning spun-off
captives into successful vendors in the open market, foreign companies acquiring
Indian BPOs or KPOs), valuation hurdles and key man risks, which may be major barriers
for the acquisition of smaller BPOs/KPOs. Finally, IPOs conducted only for financial
reasons without strategic rationale may become very costly in terms of actual cost
and opportunity cost. “Many Acquiring firms find it difficult to counter post-merger
challenges, when they start facing difficulties in integrating various processes,
different functions such as Sales and Marketing, Administration and HR, and ensuring
that the merged entity has a common culture. Hence, much more important than identifying
an M&A opportunity is the process of managing the same, and integrating the
two entities.” – says Marc Vollenweider, CEO, Evalueserve.
Evalueserve Overview
Evalueserve offers high-quality knowledge services in Investment Research, Business
Research, Intellectual Property, Market Research, and Data and Financial Analytics
to clients worldwide. Founded in 2000, it has more than 1,500 employees, with operations
centres in India, China and Chile, and a strong sales presence across all major
global locations. Evalueserve won several awards in 2006, including Red Herring
Asia Top 100, NASSCOM IT Innovation Award for Business Model Innovation and the
Deloitte Fast 500 APAC Award.
To learn more about Evalueserve, please visit http://www.Evalueserve.com.
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