When
Mumbai-based TransWorks, the BPO subsidiary of Aditya Birla Nuvo,
acquired Canada's Minacs for $125 million (Rs 587.5 crore), it
suddenly leapfrogged from nowhere to the second largest player
in the Indian BPO space. How? Thanks to its parentage, TransWorks
was able to buy a company seven times larger than itself (In 2005,
Minacs reported revenues of C$290 million, or $260 million). "I
won't be surprised if the first billion-dollar acquisition by
an Indian company happens in the ITES rather than it space,"
quips K. P. Balaraj, Managing Director, Sequoia Capital (India).
For India's BPO sector, consolidation through
mergers and acquisitions (m&as) have been a fact of life.
Wipro kick-started M&As in the industry nearly four years
ago when it acquired independent vendor Spectramind for what was
then seen as an exorbitant $95 million. Since then, acquisitions
have been used for a wide variety of reasons. Large tech companies
such as IBM (it bought Daksh in April 2004), EDs (it acquired
Mphasis this year) and Wipro have used it to quickly ramp up their
BPO operations, some others such as TCS have bought BPOs abroad
to get a foothold in new markets, and yet others to move into
lucrative, knowledge-based segments. ICICIOneSource, for instance,
bought Pipal Research in August 2004. "The Minacs deal has
given us not just a wider delivery base, but also marquee client
relationships," says Atul Kanwar, CEO, TransWorks. While
TransWorks will see revenues and headcount grow several fold on
the back of the Minacs deal, other vendors such as iciciOneSource
(I-OneSource) have put together at least four deals to cover everything
from basic voice-based (FirstRing) services to high-end analytics.
![](grfx/144b.jpg) |
TCS' Chandrasekaran: The company's acquisition
of Chile-based Comicrom will help it enter new markets like
Latin America |
Expect more M&As in the years ahead, both
in India and abroad. There are an estimated 200 companies in the
BPO industry, but the top 10 or 15 players already have a lion's
share of the market. As the big BPOs get bigger, the smaller ones
will be hard-pressed to stay their course. Like it happened around
October 2003, when the us do-not-call registry came into effect
and led to at least half-a-dozen out-bound telemarketers (CallWorld
Technologies and Venus Cybertech, among others) downing shutters,
there may be another round of closures-unles the domestic market
takes off. "The BPO industry is globalising rapidly and Indian
companies will look out in places such as Eastern Europe and North
America," says NASSCOM's Kiran Karnik.
Aggressive acquirers such as I-OneSource insist
that given the scale required (both in terms of headcount and
the breadth of services), organic growth alone can't be the strategy.
Aside from scale, vendors have looked to leverage acquisitions
to enter new markets. I-OneSource recently acquired Account Solutions
and, consequently, a foothold in the $16-billion (Rs 75,200-crore)
us collections market. "This acquisition is in line with
our plans to aggressively expand our services and this deal lets
us offer a full suite of collections capabilities," says
Ananda Mukerji, MD and CEO, I-One Source.
![](grfx/144a.jpg) |
TransWorks' Kanwar: The Minacs deal
has given the company a wider delivery base and will also
boost revenues and headcount several fold |
Louis Hall, coo, Xansa, says acquisitions
are being made for a number of reasons, ranging from geographic
expansion (as in the case when Wipro acquired Enabler to enter
the retail services space in Portugal, or rather Europe), vertical
differentiation (Genpact acquiring Moneyline to enhance mortgage
BPO), or access to offshore capability-for instance, EDs' purchase
of Mphasis. Home-grown tech giant, TCS, has also made a number
of niche acquisitions in the BPO space. N. Chandrasekaran, the
company's Head of Global Sales and Operations, says that acquisitions
and structured deals in BPO have two strategic aims. One is to
consolidate (through mergers) of some subsidiary entities with
a view to leverage synergies and to provide 'verticalised' and
unified offering to customers. "The other strategic aim,"
he explains, "is to use M&As to enter new markets like
Latin America through the acquisition of Chile-based BPO player
Comicrom, or a new business using an innovative service model
like pensions and life insurance processing, which we did through
a 12-year, $847-million deal with UK insurer Pearl Group."
Under the deal, Pearl transferred business processes to a specially
set up UK-based TCS subsidiary.
While acquisitions are an easy way to grow,
valuations are soaring. So, some of the larger players are raising
money from the markets to pay for possible acquisitions. WNS recently
successfully raised $224 million (Rs 1,052.8 crore) through an
IPO and listing on the New York Stock Exchange. "Listing
and raising money through the markets provides currency for acquisition
as well as a bait to attract talent," says Balaraj. Indeed.
Till recently only employees of software companies used to collect
sizeable compensation packets through ESOPs once a company listed.
Now BPO companies have joined the bandwagon. After successful
debut of WNS on NYSE, EXL is now seeking to raise $60 million
(Rs 282 crore). I-OneSource and 24/7 Customer are believed to
be waiting in the wings too. So, Balaraj's prediction of a billion-dollar
BPO deal may happen sooner than you expect.
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