The Next Wave of Consolidation in BpO Business
||—A few weeks ago we have talked about the sale of Firstsource to RPG group and tried to understand what may work in the favor of the deal. The next wave of consolidation in the BpO business continues with the acquisition of Apollo Healthstreet by Sutherland Global. If we look at the history of consolidation in the BpO business this is the third wave. Let us look at some of the earlier wave in the consolidation in the BpO business. It all started when the early start-ups were struggling to grow and needed financial muscle to scale up. They prooved that the third-party model works and the big boys of business were willing to put money behind the concept now.
- The First wave of consolidation in BpO was when the early entrepreneurs started selling their companies to big business this included sales of Spectramind to Wipro, Daksh to IBM, Transworks to Aditya Birla group and so on. The sellers were first generation Indian entrepreneurs who were cashing out by selling to both MNCs as well as Indian companies.
- The second wave of consolidation in BpO can be considered when the MNC companies started selling their captive centers in India to pure play third-party BpO companies, this would be deals like TCS buying eServe from Citi, Cognizant buying the captive of UBS, HCL buying the captive of Deutsche bank etc. There were two reasons for these sales a) the MNC parents were in bad shape financially ( citi, UBS) and wanted to cash out as many assets as possible to invest in core business. The other reason with more long-term strategic impact is the realization that the cost advantage you get by outsourcing gets blunt due to higher cost of operating the captive center. In this phase the buyers were both Indian and US companies but seller was in almost all cases a large captive of a MNC.
- What we are seeing now is the third major phase of consolidation. In this case the large diversified Indian companies are getting out of non core business. The sale of Firstsource by ICICI and Apollo Healthstreet by Apollo Hospitals group is in our opinion first of such deals and we expect many more are in the pipeline. What appears is that either due to regulatory reasons like in case of ICICI or due to financial and strategic reasons like in case of Apollo, a lot of deals are being negotiated behind the curtains and we will keep on hearing about them in the media as and when some thing closes.
Coming back to the Apollo and Sutherland deal given below are the details taken from media reports
The enterprise value of the deal is around Rs 1,000 crore, of which around Rs 210-220 crore will come to Apollo Hospitals Enterprises Ltd (AHEL), which is holding around 39.4%, while Promoters and promoters family are holding around 35-40%and One Equity Partners holding around 10-15%, said Apollo Hospitals sources.
The other major investors are PE funds including Temasek Holdings, One Equity Partners and Schroder Cap, which are holding the rest of the shareholding
The AHEL official said that the proceedings will be used for company’s Rs 2,000-crore expansion plan. At present the company has a cash balance of around Rs 300 crore.
“This acquisition will position the combined organisation as a leading Healthcare service provider with comprehensive information technology and business process integrated solutions and consolidate its presence as a dominant player in the $38 billion US Healthcare BPO market,” according to Sutherland’s statement.
Apollo Health Street provides customized strategic support services to more than 150 healthcare partners throughout the US from 10 global operational centers of excellence.
Prathap C Reddy, Founder Chairman of Apollo Hospitals, one of Asia’s Premier Healthcare Groups said, “In order to drive Apollo Health Street’s growth to the next stage, it was essential to find the right Strategic partner.
“In Sutherland, we found the ideal partner with a proven track-record of excellence in services, technology, and leadership. The combined capabilities of both companies will create a compelling value proposition for our clients,” said the Hospital Chain’s founder.
It is clear that the Apollo group will be using some of this money to reinvest in the hospitals business while some members of the family and PE companies have multiplied their investment.
As always there will be some job loss in the acquired company in the coming months, though both the companies will deny that in the media. Expect more such deals in the coming months.
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