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Domestic third-party business process outsourcing (BPO) outfits have been on a buying spree this year --- picking up at least 10 companies around the world, up from less than half-a-dozen in 2004. And this trend will get bigger in 2006.
Says Ananda Mukerji, managing director & CEO, ICICI OneSource, Today the industry is doing more complex tasks in claims processing, mortgage, analytics. Clients wants to know what else can we do, driving vendors to acquire companies overseas. While Sameer Walia, managing director, The Smart Cube, (a business research firm) sees a 200-300% increase in acquisitions by Indian vendors to help firm up front-end relationships and acquire delivery capability. Adds one analyst: the number of deals will more than double next year.
TCS led the way on the acquisition front with two buyouts during 2005. In the transaction processing space, TCS bought out the life and pensions business processing division of UK-based Pearl Group. The company expects to boost revenues by $847 million over the next 12 years as a result of this acquisition. TCS followed this up with buying out Santiago (Chile) based Comicrom boosting its capability in banking and insurance. The company is ramping up its BPO head-count from 2,500 employees to about 4,500 over the next 12 months. The deals will help TCS boost revenues in transaction processing and call centre services from $45 million at present to over $200 million over the next couple of years.
Among other deals, Chennai-based OfficeTiger picked up Mortgage Ramp in Salt Lake City (Utah, US), WNS bought out Tucson (Arizona)-based Trinity, Genpact acquired Creditek, Mphasis picked up Eldorado and ICICI OneSource saw its healthcare, printing and publishing process capability get a boost with the acquisition of RevIT.
Says Alok Misra, CFO, Mphasis BFL: a 200 people IT services operation may be big but a 2,000 people BPO business is still small. We need acquisitions to acquire relevant scale, capability and to plug gaps in service offerings. We are looking at another acquisition in the finance and accounting space.
Often acquisitions are pushed by clients. They are insisting on a near shore capability to mitigate backlash against offshoring jobs and also help acquire niche skills in say retail, insurance or healthcare. Says Sandeep Aggarwal, VP, sales, solutions & transitions, Intelenet Global Services: ramping up from 50 to say 700 employees with a single client can take 18 months or more. Acquisitions give quick access to new clients and helps build scale. Also, a BPO company typically spend 5-10% of its revenue and at least six to nine months on new client acquisition. Buying out a company could prove to be a better strategy in the short term.
By acquiring Creditek, Genpact not only got access to finance and accounts capability but also 50 clients. OfficeTiger saw its client base move up by 60 with its acquisition of Mortgage Ramp. Says Joseph Sigelman, co-CEO, OfficeTiger, there is work that we cant do out of India due to lack of delivery capability. Thats what Mortgage Ramp brings in --- capability in mortgage processing and also an onsite presence in the US. We plan to make one more acquisition next year."
2006 may well ring in double the number of deals compared to 2005. TCS is close to finalizing an acquisition in the banking space. Via acquisitions BPOs will look at new clients, new service lines and new geographies. There is lot more appetite to buy now, says Sunil Mehta, vice president, Nasscom.
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