Knowledge process outsourcing sector attracts PE

Companies that have domain knowledge in the business process outsourcing (BPO) sector have started appearing on the radar of private equity (PE) players.

These firms are covered under the broad umbrella of the knowledge process outsourcing (KPO) sector. Private equity player Sequoia Capital, for instance, increased its stake in BSE-listed KPO eClerx to 10 per cent this March. Actis, too, invested $50 million (over Rs 220 crore) in KPO firm Integreon. And recently, Mumbai-based Adventity was acquired by Sutherland Global Services, a US-based BPO firm.

Unlike BPO, KPO is a very niche segment. It involves domain-specific skills and caters to segments like legal process outsourcing (LPO), engineering services, research process outsourcing, market research and financial research. Of these, engineering services constitute a significant share followed by LPO.

Revenues from the global KPO industry were estimated to be $7.5 billion (around Rs 34,500 crore) for the year 2008, according to ValueNotes, a research and business intelligence firm. Until 2007, the industry was growing at 30-35 per cent per annum. The industry growth rate, however, slowed down in 2008 and 2009 to 20 per cent. But the research firm expects the KPO industry to pick up pace post 2010.

In India, the BPO sector posted a revenue of around $12.4 billion for FY10, according to software body Nasscom. The KPO sector is estimated to comprise 10-12 per cent of the total BPO pie.

Sandeep Singhal of Sequoia Capital believes the KPO segment has much more sticky business than others. “From an investment opportunity we believe that IT and BPO sectors still have many years of growth and margin; particularly the KPO segment, which has sticky business. For instance, eClerx, despite all the pressure during the slowdown it has managed to grow very well,” says Singhal.