Common clients brought IBM, Daksh together

The recent acquisition of BPO service provider Daksh e-Services by the $89 billion technology behemoth IBM in the biggest such deal in the country, could well have been driven by two common US clients of Daksh and IBM. Both Daksh and IBM share US-based wireless service provider Sprint Corp, and health insurance provider Aetna Inc, as customers.

Incidentally, the $50 million Daksh was slated to go in for an IPO in the next 12-15 months, but instead chose to sell out to IBM in a deal rumoured to be between $130 million and $170 million, that will see it become a 100 per cent subsidiary of the American company.

Two of the biggest customers of Daksh are Sprint and Aetna, and in fact Sprint is estimated to contribute more than 30 per cent to the topline of Daksh.

Sprint and IBM had in February this year announced a five-year, multi-billion dollar customer-service agreement where Sprint expected to reduce customer service costs by a whopping $550 million over a three-year time frame.

According to the terms of the deal IBM would offer consulting support for all of Sprint's customer service processes, improve customer satisfaction and also ensure higher operational efficiencies. The IBM-Sprint deal also envisaged an IBM takeover of Sprint's existing outsourced call centers, apart from handling the management reins at Sprint's own call centre based out of Nashville, Tennessee.

Similarly in December last year, IBM had inked a five-year agreement with health insurer Aetna Inc. wherein IBM business consultants would advise Aetna increase operating efficiency and significantly improving the customer experience. The Sprint agreement of IBM and Daksh' strength as a service provider of offshore-based customer support to Sprint, has according to sources close to the deal made this deal a business imperative for both parties.

Sources also point out that with IBM getting the Sprint customer service business globally, Daksh would have had to face stiffer competition for the business. "For both the parties concerned it makes strategic and financial sense to be in this deal. The financial investors were the majority shareholders in Daksh and they did what they thought right to maximise returns for their community," sources said.

It is also interesting to note that IBM Global Services was the implementation partner for Daksh, for their 20-week long PeopleSoft software implementation. While such relationships do not create deals, two parties working together for a reasonable period of time, usually creates the comfort between themselves, which can often lead to deals.

In the last round of funding, General Atlantic (GA) Partners had invested $20 million in Daksh at a valuation of $100 million, and more than 60 per cent of the company is with these investors. In its last round of funding Daksh had raised around $25 and $30 million from GA Partners, Citibank Private Equity and Actis (formerly CDC). The average return for the investors at the valuation of $170 million was more than 50 per cent in this deal.