“Intelenet buys two BPOs for USD 75 million”

“Sutherland acquires Adventity for $50 million”

News headlines like these have been quite frequent over the last year or so. The Indian BPO industry is seeing gradual growth after a year of recession. The exports revenues alone are estimated to be $12.4 billion for FY10. Amidst this buoyancy, there is a strong trend emerging in the BPO sector and among the pure play BPO players – “inorganic growth”. Some of the larger BPOs, particularly in India have been aggressively targeting acquisitions in the last few years and are expected to do so in the next couple of years at least.

What’s interesting is that there is no one single factor that is driving the inorganic growth. The rationale is varied – entering new geographies, acquiring new business lines or verticals, greenfield operations for clients and so on. Whatever the reason/s, the BPO companies are very aggressive about acquisitions. Aegis, emerging as one of the most prolific acquirers in the last few years has an agenda to reach the $1 billion revenue mark. In various interviews, the senior management has said that they have earmarked $400 million for entering emerging markets through the acquisition route. Their target is at least four acquisitions in the year. Our estimates indicate that the company has made at least 12 acquisitions in the last 4 years. HCL BPO is looking to expand into the verticals – banking, financial services and insurance and seems to be geography agnostic in its acquisition plans. In its first acquisition since inception 24 years ago, Sutherland Global Services acquired Adventity Global Services in a $50 million deal. This was a combination of a geography and vertical strategy given that Adventity provided services to the banking and financial services as well as airline and travel sectors with presence in Asia, Africa and West Asia. Intelenet Global Services’ acquisitions in the last four years also reflect this diverse strategy for growth. They recently acquired the back office operations of First Group Plc, thereby making their European presence stronger. Earlier they had acquired Travelport and Upstream BPO to enter into the travel domain and Spanco BPO in 2005 for the domestic India market.

This is not to say that growth through acquisitions or inorganic growth is a new phenomenon. The larger and IT focused companies have made strategic acquisitions in the past. In fact, quite a few of them have been made to enter into the BPO domain. Case in point is IBM which acquired Daksh in 2004. This acquisition not only strengthened IBM’s offshore presence but also facilitated their foray in the BPO business. Similarly, TCS went from strength to strength with the acquisition of Citigroup’s BPO arm for $505 million and in turn, gained Citigroup as a client with $2.5 billion worth of business over 9.5 years. Wipro acquired Spectramind e-Services in 2002 marking their big foray into the BPO business.

The phenomenal growth that the BPO industry had witnessed in the last few years may have slowed down. However, the business is global and clients are asking for a global, diverse and well experienced partner in their business. Thus, inorganic growth is not just a revenue play but a strategy to cater to a global market.