H-P exploring options to divest BPO operations

Business likely to be valued at $400 million.

Hewlett-Packard (H-P), the $89-billion technology major, is exploring options to divest its majority stake in its business process outsourcing (BPO) business, H-P Global eBusiness Operations, in India. This business, which employs around 6,000, focuses on finance and administration.

The company had examined options for the divestment and was planning to become a minority partner in this operation, sources close to the development said.

According to industry estimates, if Hewlett-Packard decides to go ahead with the divestment, the business will be valued at around $400-450 million. Hewlett-Packard India executives declined to comment.

H-P Global eBusiness Operations, which has operations near Bangalore and Chennai, focuses on improving Hewlett-Packard's transaction-intensive business processes. It has, in the last couple of years, extended its operations to provide services to external customers as well.

According to company executives, the BPO operation deploys a little over 60 per cent of its resources for captive work, while the remaining handle work outsourced by customers. This division caters to the US, European and West Asian clients.

The transaction will follow a list of similar divestments by General Electric of its BPO operations in India, and also the recent deal in which Unilever divested its majority stake in India to CapGemini.

According to industry analysts, this trend of global corporations hiving off their captive BPO operations is mainly because third-party service providers delivering cost-effective, enhanced quality services, increased domain expertise, and in some cases, better processes.

"The captive model was adopted by large companies because they wanted to establish processes and achieve cost savings simultaneously. In many cases, like GE, they had to do it themselves. The surge in the number of service providers in recent years, coupled with the ability to significantly monetise investments into higher returns have prompted GE and Unilever to exit," Harish HV, partner, Grant Thornton India, said.

The move, according to Harish, gives the parent company good valuation and cash inflow. "Also as a buyer they can ask the new service provider to give them better prices, using the scale advantages that the new service provider will have as they will have larger operations than their captive counterparts," Harish said.

CASHING OUT

Company plans to become a minority partner in the operation

H-P Global eBusiness Operations focuses on finance and administration

Transaction will follow a list of similar divestments by General Electric of its BPO operations in India, and also the recent deal in which Unilever divested its majority stake in India to CapGemini