The BPO industry 2009: The year that was

Wednesday, 30 December 2009

Over the last decade, the BPO industry has grown at a frenetic pace. However, the last two years have been challenging for several service providers due to the uncertain economic conditions. The Indian BPO industry that was growing at a rapid pace (CAGR of 30+%) from 2004-2008, experienced a slowdown for the year 2008-09 (with a growth rate of 17% per annum). Revenues from the Indian BPO industry were $12.8 b in FY 2008-09. Exhibit: The BPO industry revenues    Source: NASSCOM The year 2009 saw many BPOs expanding their operations. While some BPOs expanded their operations by setting up new centers and expanding their own branches others explored the acquisition option to grow their business. This is a result of the move towards a mix of multiple locations, on-shore, near-shore and offshore; as a means to serve customers better and de-risk operations. Several BPOs including Wipro, Convergys, Aegis BPO, WNS, FirstSource, Infosys and Zenta expanded operations within and outside India. A quick look at some significant events that impacted the BPO industry in 2009: Major acquisitions in the sector Despite a visible impact of economic slowdown in the BPO industry, some BPOs continued on their expansion drive. These acquisitions demonstrate a focus on creating an image of a global service provider with geographically dispersed delivery centers.   Infosys BPO bought McCamish Systems, the US based back office company for $38 m. With this acquisition Infosys BPO will strengthen its presence in the insurance vertical and its strategy of platform-based services.   Integreon acquired ONSITE3 for $9 m. With this acquisition, Integreon will expand its scalability and US footprint in litigation and compliance services. The acquisition of Onsite Solutions has been in keeping with Integreon’s plan to strengthen their e-discovery division.   Aegis BPO is one of the BPOs that have grown multifold as a result of the acquisitions. The acquisitions by Aegis demonstrate divergence across segments and geographies with a singular focus on growth. The company’s acquisition activities in 2009 are as follows: Aegis BPO acquired CCN Group, a South African contact centre outsourcing company. With this acquisition, Aegis will expand its operations to South Africa with two delivery centers and over 1,000 employees. CCN reported revenues in excess of Rs. 150 m ($19 m) for FY 2008-09. Acquired Australia-based UCMS Group, a BPO company for $40.7 m. With this acquisition, Aegis BPO will expand its operations in Australia. Aegis also bought 80% stake in Ismart Timex, a Sri Lanka based outsourcing service provider. Ismart Timex offers contact centre and back office support services. With this acquisition, Aegis will have a total of 35 delivery centers across the world. Captives…attractive acquisition targets Most corporates have been under tremendous financial pressure over the last couple of months. With the current global financial crisis, companies are wary about continuing with their captive center operations. The liquidity crunch in the market led some of the corporates to pull out of their captive centers. Acquirers found the valuations attractive which resulted in the deals mentioned below:   Cognizant acquired UBS India Service Centre (UBS ISC), a captive of UBS, a Swiss financial firm, for $75 m. ISC specializes in BPO services which include securities operations, compliance, finance, presentations & design. In addition, ISC provides research and analytics and IT infrastructure management services.   MphasiS acquired India based captive IT services unit of American International Group, AIG Systems Solutions Private Ltd. AIG Systems Solutions has around 800 employees across Chennai and Kolkata.   The subsidiary of General Electric, GE Money sold its back office operations center in Guatemala City to Genpact. This acquisition will expand Genpact's operations in Mexico and increase its ability to provide services in Spanish to the US clients. Additionally, Genpact will provide back office services to GE Money.   Integreon bought out Grail Research, the captive research unit of the Monitor group. With this acquisition, Integreon will have a delivery center in China and South Africa. As part of this acquisition, Integreon will get a five year revenue commitment from the Monitor group. Significant contracts While there were several deals announced in the IT-BPO sector, increased focus in the domestic market was seen with a large number of deals from the Government sector. Some of the deals in the BPO sector are as follows:   Intelenet bagged a seven-year outsourcing contract from a healthcare provider. This contract is estimated to be around $300 m. Intelenet will handle the back-office operations which include raising invoices and contacting patients and hospitals.   Huntsman, a global manufacturer and marketer of differentiated chemicals, awarded a five year financial services contract to Genpact. As per the contract, Genpact will provide accounts payable services in Europe, North America, and Asia Pacific.   Idea Cellular awarded a five year outsourcing deal worth Rs.1450 m to FirstSource. As per the contract, FirstSource will offer customer management interaction services, such as, new product information, billing, and plan detail-related interaction services to the telecom operator from its Coimbatore center.   MTNL awarded a two year GSM call center contract to Caretel. As per the contract, Caretel will provide multi-lingual voice and data support to MTNL’s customers.   Aditya Birla Minacs won a five year outsourcing contract from Idea Cellular. The deal is estimated to be worth INR 6 bn. As per the deal, Aditya Birla Minacs will offer voice based services to Idea Cellular. Aditya Birla Minacs has around 2,000 employees providing services to Idea Cellular and it further plans to add another 2,500 employees by March 2010. Despite these large contracts, the industry faced several concerns in 2009. The increasing margin pressures hit several BPOs and KPOs. Obama’s announcement to end the tax breaks for corporations that ship jobs abroad added to the woes of the service providers. While the BPO service providers are reeling under the negative impact from a recessionary environment, we believe that 2010 is likely to reduce the worries of the industry. Indian IT and BPO service providers that have until recently favored the dollar market have turned towards new opportunities in terms of service focus and markets. Further, contracts bagged by some of the service providers display the growing client confidence from the conservative segments such as legal services, healthcare and the government sector.

 

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