According to the Economic Times, Nov 14, 2014, Serco BPO, one of the well-known players of the Indian BPO industry is up for sale. The decision for sale has been taken by its UK parent company. The move is seen as an attempt by the UK parent company to raise funds in order to plug a £1.5-billion gap in its balance sheet.
Serco aims to tackle its failed contracts
Serco BPO is India’s third largest business process outsourcing company. In a significant move earlier this week, the London listed company Serco cut its profit forecast for this fiscal year as well as the next. Following a review that was aimed to tackle its failed contracts, the company budged under the write-down.
Review leading to the decision
The crucial review was led by McKinsey. The review came up with suggestions that the parent company must decide against continuing with its non-core businesses. It concluded that the parent company should take the recourse of selling its non-core business verticals, including the BPO business.
Serco seeks to raise funds
Serco is aiming to raise funds by all means. It has announced its plans to raise an amount of £550 million through an equity rights issue. According to a reliable source, Serco is likely to attract bids from other companies in the sector and private equity firms. The source also informed that there has been consolidation in the sector.
What actually ails Serco?
Serco has been facing trouble for more than a year now. The company suffered a setback in October last year when its chief executive Chris Hyman quit over allegations that the company may have been involved in fraud in one of its government contracts. The issue had resulted in Serco being banned from bidding for any new government contracts.
Serco BPO sale process to mature in 2015
Serco’s troubles did not subside even when Rupert Soames took over as the new CEO. Rupert Soames, a grandson of former UK Prime Minister Winston Churchill, could not put the company back on track. The result was that the BPO unit’s acquisition plans were scuppered. However, as per the latest round of developments, the sale process is expected to mature by the first half of 2015.
Citigroup to handle Serco BPO sale process
Serco has authorized Citigroup to handle the sale of the business process unit. It has been learned from another reliable source that the decision for sale of Serco BPO has generated some interest in the Indian BPO industry and at least one Indian BPO company has shown initial interest in the matter.
Though the source refused to divulge the name of the interested company, Sky News reported in London that private equity firm Carlyle is interested in the acquisition of Serco BPO.
Several buyers are expected to be interested in the acquisition
There was no immediate response from Serco’s end when contacted for information or comment. According to Sandeep Ladda, partner and technology industry leader at PwC, there will be a number of buyers who will be interested in an acquisition. He said, “I am sure there will be a good number of buyers who would vie for that pie because Serco has pretty large operations in India.”
The strength of Serco BPO
Serco BPO has a strong presence in the industry with around 60,000 employees working for it across the globe. The BPO division of Serco, called Serco Global Services, is known to have about $1.2 billion in revenue.
Serco’s BPO division was created by consolidating several of the company’s acquisitions, such as the Intelenet, the Listening Company in UK, Excelior in Australia and others in the Middle East.
Serco UK parent keen on retaining government business
Serco is considering the option to sell some of the businesses in the Global Services unit separately while retaining the government business for the parent company.
According to Robert Plant, an analyst with JP Morgan Cazenove, the policy to retain the government business by the parent company is a sensible one. His comment is based on the fact that public sector service has always been the historical core of Serco. He pointed out that some of Serco’s ventures in the private sector, such as with Intelenet, has resulted in mixed outcomes.
As such, it is no wonder that the company may want to hold back on the government business. Robert Plant estimated that the private company BPO business together with a few others also on the block has revenues of about 600 million pounds.
A new route for Serco
This is not the first time that the BPO industry is witnessing such changes. In fact, the BPO sector has been consolidating over the past two years. Last September IBM sold its BPO venture Daksh to Concentrix and in January Convergys merged with Stream. Aegis sold it US business to Teleperformance in August.
As such, this latest development in Serco BPO is nothing new for the industry. But for Serco, it is definitely a change of route from here.