With the rapid evolution of offshoring from process driven back-office jobs and call centers, to the much-talked-about knowledge driven jobs, exciting times lie ahead for niche focused BPOs and KPOs. The high level of interest and optimism in knowledge service companies or specialized BPOs is evident from the spate of recent M&A deals, some of which appear hugely expensive:

The rising M&A activity reflects the eagerness of larger BPO companies to quickly complement/enhance specialist capabilities, and thereby move up the value chain.

Funding fast track growth

Traditionally, only a few VCs have been investing in niche BPO players due to concerns over scalability, the emergence of good exit options has validated the bets of these few investors. As a result, VC investments are likely to rise significantly in such companies, a sign of the recognition of growth opportunities in under-explored and emerging segments and geographies. Some of the recent investments include:

• Sequoia Capital, Silicon Valley Bank, Light Speed Venture have invested $10.5 million in TutorVista, which focuses on online education and content.
• Quattro BPO Solutions has invested in Annik Solutions, a market Research BPO, and in Scope e-knowledge a research BPO.
• Barings Equity partners has invested in Integra, a publishing BPO

Interestingly, some players in this game have been around for many years, and after years of relatively sedate, organic growth, are experiencing a revival in their aspirations with the growing interest of VCs/private equity investors. For instance, Integra a Pondicherry-based publishing BPO set up in 1994 recently took VC funding from Baring Private Equity Partners to accelerate growth. As per Anu Sriram, Co-founder and Joint MD, Integra, "Integra started in a small way 13 years ago, and has grown today to become a significant player in the e-publishing space. We are well positioned to increase our market size and capitalize on the current success of our business."

Of course, in any such "gold rush", there are going to be many who stumble by the way side. And any number of "me-toos" only intensify competitive pressures. More funding in a segment will create bigger competitors, and those without the same kind of money clout may be unable to compete. Needless to say, players need to differentiate themselves, by virtue of either unique specialization/capabilities, robust processes, technology or productized offerings. Those that can succeed at this will continue to attract investors as well as buyers, while the rest may find no takers at any price!

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