BW Communities

BPO Sector To Grow By M&A

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[M&A is going to be the way forward for the BPO industry. Last week, at a summit organised by the National Association of Software and Services Companies (Nasscom),top BPO executives said that the increasing focus on verticalisation or vertical specialisation in the IT and BPO space will see mergers and acquisitions as growth drivers of the industry. "Growth companies will look for M&As more than stable ones," said EXL Service Holding Chief Executive Rohit Kapoor. Noting that the industry will witness a bit of acceleration in acquisition activity, Kapoor said reasons for firms going for acquisitions include entry into new geographies, bid to attain size and scale, accessing new customers, and acquiring technology. Kapoor said that EXL Service was in talks with six to eight industry players for acquisitions that could total $130 million. "Expectation of a seller and price value of a buyer will match more than ever in this environment," Kapoor said, adding that difficulty in customer acquisition, low cost of borrowing and surplus cash will help companies to snap up strategic fits. Explaining the trigger points for its seven acquisitions in last eight years, Hinduja Global Solutions (HGS) Chief Executive Partha DeSarkar said that the 'hunger for expertise' or vertical specialisation was one of the key driving factors as it is the most practical approach for strengthening presence in a particular vertical. The CXOs observed that creating a new green-field set-up is very expensive in the BPO space, and said that the industry will see more consolidation as it is much more fragmented than the IT industry. DeSarkar said that telecom is an interesting sector and has been evolving continuously. "It's not the easiest vertical to make money in but it's an evergreen growth vertical," he added. "BFS (banking and financial services) sector is the new whitespace for the BPO industry, and companies will compete strongly to win clients in the sector," Kapoor commented. The top executive of the BPO arm of the Hinduja Group, which has announced two acquisitions in August, also said that integration of a buyout is as significant as the acquisition itself. HGS entered the human resource vertical by acquiring 3i lnfotech's  HR outsourcing unit HCCA Business Services for an undisclosed sum. Earlier, the company had acquired On Line Support Inc, a Canadian customer relationship management company, for about C$75 million. These two acquisitions are expected to add annual revenue of about $68 million to HGS. The company had reported revenue of $242 million in FY 2011. "Margins have risen five to six per cent due to verticalisation," iGATE-Patni's Senior Vice President and BPO Head Sanjiv Kapur said. He added that the clients today are focused on outcome-based pricing. "It helps them to evaluate the total cost of operations," he says. iGatePatni, which focuses on insurance, banking-financial services and manufacturing, believes in limiting its focus on few verticals by providing clients a full-range of services. Kapur added that the company will not charter into the territories (verticals) it does not understand as each vertical has its own competencies. The company has operations in the US, Canada, Europe, and Asia-Pacific and provides multilingual support including English, German, French, Spanish, Japanese, Chinese, Italian, and Mandarin. The executives had gathered for industry body summit on BPO Strategythis week. Some of the key topics discussed included globalisation of services, niche opportunities, technology in BPO, virtualisation and consolidation. One of the most talked about topic at the event was the impact of the current slowdown in the market, to which industry leaders gave mixed responses. While TCS' BPO said it saw no immediate impact on its business, others like Infosys and Wipro raised a voice of caution and said that they fear that the sector could suffer due to the turmoil in the western markets. Nasscom sees the Indian IT industry growing at a rate of 16-18 per cent in 2011-2012 despite uncertainties in the US and European markets.