June 2007
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PE groups on the prowl for Indian IT & BPO cos?

After years of silence, private equity groups are back on the prowl for Indian IT and BPO companies. Here’s why buyout firms are back to cutting deals.


Flush with cash, private equity firms are gunning for deals in the Indian IT and BPO industry. After leading private equity firm Blackstone picked up an 80% stake in BPO firm Intelenet, rival PE firms like 3i and Carlyle are said to be in the race for Citigroup's BPO arm.


Their interest in outsourcing, industry watchers3 say, is part of a well drawn out strategy to cash in at both ends. PE companies cut costs in companies they have invested in, while making money from the incremental business brought in to the acquired BPO and IT firms. 


Susir Kumar, CEO, Intelenet said, “One of the reasons we partnered with Blackstone was because we believe that if these companies offshore, it will create value for Blackstone in the US because costs go down, profit goes up, value goes up. Here when all of these potential businesses get captured in Intelenet, it creates value again for Intelenet. So it’s a win win for them.”


Similar views are echoed by IT firm Patni which has PE suitors lined up to pick up a stake in the company. Narendra K Patni, Chairman and CEO, Patni Computers said, “Private equity investors control large portfolios of companies and they have large IT spends that could be outsourced. So if a private equity investor can combine his equity purchase and we can relate it to IT spend, it can make a very valuable contribution to the company.”


The private equity business, at the end of the day, is about turning around struggling companies and selling them at a profit. Cutting costs with the help of Indian IT and BPO is one-way and if PE firms can make money by investing in them as well, it’s a classic win-win situation.

Source : Money Control

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