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.

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.

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.