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The backoffice arms of Indias leading software service firms such as Wipro Ltd and HCL Technologies Ltd plan to acquire the business process divisions, including employees, of large US and European corporations as a means to acquire business following examples set by larger peers Tata Consultancy Services Ltd TCS and Infosys Technologies Ltd.
In July, Infosys took over the backoffice operations of Royal Philips Electronics, employing around 1,400 professionals in Chennai, Bangkok, and Lodz in Poland for US Dollar28 million Rs115 crore. The Bangalorebased vendor will execute payroll processing and other financial services as part of the sevenyear contract that will see it making revenues of about Rs1,000 crore.
TCS, in October 2005, won a Rs3,810crore business process outsourcing services contract from UK insurer Pearl Group, taking over around 950 employees as part of the deal.
Indian BPO firms are pursuing such acquisitions to gain more scalability, nonlinearity in terms of growth and domain expertise, said T.K. Kurien, chief executive officer for Wipros backoffice business, who, too, is looking at similar global acquisitions.
The backoffice arm of HCL Technologies, which acquired 90 percent of a BT Plc contact centre in Belfast for US Dollar 11.5 million in 2001 and followed it up two years later with a US Dollar 160million services contract with the British telecom firm, is also keen on this route. Such acquisitions help us get a jumpstart and acquire the existing relationships, contracts, people of the customer. We are currently talking to other global players for such acquisitions in the future, said Ranjit Narasimhan, chief operating officer of HCL Technologies global BPO operations.
Analysts say that this buy revenues strategy will help Indian BPO firms clinch mega outsourcing deals that are in the range of US Dollar 500 million and US Dollar1.5 billion. We will see a lot more of this trend as we look at larger deals, said Sabyasachi S. Satyaprasad, research director at Bangalorebased offshore advisory firm neoIT.
Other than the backoffice operations of Indian tech vendors, even pure play BPO players such as FirstSource Solutions Ltd are game to make similar buyouts. The Mumbaibased firm acquired the 400strong captive centre of one its telecom customers with operations in Argentina in October last year. This acquisition gave us a footprint in the Americas, said Ananda Mukherji, managing director and chief executive of the firm.
Infosys aims to follow up its Royal Philips backoffice buyout, which helped expand its presence in Europe in a big way and also brought it domain expertise, since this route proves cheaper. The value we ended up paying for this business was much lower than if we had not taken over people and other assets as part of the acquisition, said Amitabh Choudhary, chief executive of the Infosys BPO business.
Such deals do have their share of risks. Assets can become a liability when there are integration challenges in terms of making the two entities work together, said neoITs Satyaprasad. Also,said Wipros Kurien, the benefits of such deals are not sustainable unless the business can be expanded rapidly. Its a shortterm measure if its not a scalable proposition, she said, adding that Wipro is following a conservative approach to the model.
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