More mergers seen as BPO units consolidate

The IBM-Daksh deal could just be the beginning of a number of mergers and acquisitions (M&As) in the infotech-enabled services-business process outsourcing (ITES-BPO) space this year.

A number of multinational infotech services companies are looking to buy Indian BPO outfits to complete their product portfolio.

"Consolidation in the BPO segment has been happening over the last two years and will continue to happen this year. There are two reasons for this. First, large US-based infotech services companies are looking to complete their portfolio by offering delivery services. As they do not want to lose out on this revenue pie, they may pick up outsourcing centres here. The other reason is that foreign investors like Warburg may pick up private equity in some BPO firms," Ranjan Biswas, partner, Ernst &Young said.

Experts, however, said large deals like the IBM-Daksh merger might not happen in the next six-eight months. This is because in the third party outsourcing segment, there are only three large BPO firms remaining: WNS, Wipro-Spectramind and ICICI OneSource.

As these companies are not looking to sell out in the near future, analysts say the action, therefore, could be in the mid-sized segment, which included firms like Zenta Technologies, EXLService etc.

"The capital-intensive nature of this industry makes it difficult for small players to grow quickly and a number of infotech services companies have added ITES-BPO units to exploit synergies between BPO and infotech service offerings. There has been an additional impetus to this trend because large customers have become more favourable towards vendors who can provide end-to-end services," said an official with the National Association of Software and Service Companies.

The last two years have seen a spate of M&As. In 2002, Wipro acquired Spectramind for Rs 470 crore. Then Datamatics Technologies acquired Detroit-based Corpay Solutions for $13 million.

Essar Group, along with Deutsche Communications, acquired Aegis Communications Inc for $28.7 million. Daksh itself had bought Etelecare International for about $30-40 million in July last year. Also, Perot System bought Healthsource India Pvt Ltd for $10 million.