Finance & Accounting focused cos. dominate; M&A activity proliferates
Venture Capital and Private Equity firms announced investments of US$40.6 million in 5 Indian Business Process Outsourcing (BPO) companies* during the quarter ended December 31, 2003. The quantum of funds invested, as well as the number of deals, was lower compared to that in the July-September quarter (during which 7 BPO companies raised over $63 million).
The largest BPO investment announced during the quarter was the $20 million raised by Kishore Mirchandani co-founded Outsource Partners International Inc. (formerly itAccounts), a BPO firm focused on finance and accounting services. The funding was led by US-based Trident Capital. OPI’s services include accounts payable, accounts receivable, payroll, reconciliations and financial reporting. The company, which has over 600 employees, also offers tax return preparation services and document management solutions.
Ephinay Corp., another finance and accounting BPO, and Tecnovate, a travel BPO firm, raised $10 million each.
Ephinay (formerly AcFin), which had received its initial round of investments from ChrysCapital, raised its latest round of funding from US-based Trinity Ventures. “We have been proactively looking for a BPO investment with back-end capabilities in India for a number of years,” said Tim McAdam, General Partner of Trinity Ventures. “(Ephinay’s) process knowledge and laser focus on a relatively untapped category in the financial back-office differentiated them from the myriad others tackling BPO,” he added. Ephinay founder Andy Kankan, serves as the company’s Executive VP of Operations. He earlier established the Accounting Shared Service Center in India for GE Capital International Services.
Tecnovate, the Indian BPO subsidiary of UK-based leisure travel firm, ebookers plc, received its investment at a valuation of $160 million from Kipotechniki BVBA, a Belgian-registered subsidiary of Israeli holding company Mikal Ltd. Tecnovate plans to use the new funds in expanding its services to third-party clients. The company has so far catered to the needs of ebookers’ European subsidiaries. Tecnovate is led by its CEO Prashant Sahni. The parent firm, ebookers, is headed by its founder and CEO, Dinesh Dhamija.
The View Group and eTech Ventures funded Tracmail merged with two North America-based BPO firms: Toronto, Canada-based Webhelp and New Jersey, US-based Spherenomics. The combined entity, TWS Holdings, raised $6.5 million from existing stakeholders.
B2K Corp., a BPO company led by former bureaucrat Vivek Kulkarni, raised a $4.1 million investment from Oak Investment Partners, UTI Venture Funds and Dhanalakshmi Bank. B2K also acquired the outsourcing services business of Talisma Corp., a Kirkland, Washington (USA) and Bangalore based provider of CRM products and services, in which Oak Investment holds a majority stake.
Top VC investments in BPO during the Quarter ended December 31, 2003
|Outsource Partners International||20||Trident Capital, Winston LP|
|Ephinay Corporation||10||Trinity Ventures|
|TWS Holdings||6.5||View Group, eTech Ventures, CIBC Capital Partners, Insight Ventures|
|B2K Corporation||4.1||Oak Investment, UTI Ventures, Dhanalakshmi Bank|
Driven by attractive valuations and the need to scale quickly, Indian companies made several overseas acquisitions during the quarter. Call center firms based in the US and elsewhere were willing to sell out at valuations less than their projected annual revenues.
The Mumbai-based Essar Group, which has interests in a diverse range of industries, partnered with Deutsche Bank to acquire a 80% stake in US-based call center firm Aegis Communications Group Inc. Deutsche Bank and Essar will be providing equal portions of the $28.231 million investment. Aegis is reportedly among the largest call center firms in the US and counts AT&T, American Express, and Qwest Communications among its clients. The company has been reporting operating losses for the last several quarters. For the six months ended July 2003, the company generated an operating loss of $3.5 million. For the year ended December 2002, Aegis’ revenues from continuing operations were $135.9 million, a decline of 36.6% compared to the previous year. While announcing the results for the second quarter of 2003, Herman Schwarz, Aegis’ President & CEO, had said the soft US economy and the “aggressive offshore competition” was hurting the company. Aegis is expected to soon set up offshore delivery centers in India.
Mumbai-based Datamatics Technologies acquired US-based BPO firm CorPay Solutions Inc., which provides outsourced corporate payables and associated support services, for about $9 million.
Mumabi-based Hinduja TMT acquired a controlling stake and management control in Manila-Philippines based call center firm C3 for $3.9 million. C3 was reportedly valued at less than the company’s projected revenues for year. C3 was earlier a part of Benpres Holding Corporation.
The Ramesh Vangal co-founded Scandent Group acquired a significant minority stake in North American Benefits Network (NABN), a US-based third party administrator of health and welfare benefit plans. Scandent has also retained the option to further increase its stake. Financial terms were not disclosed. As part the deal, Scandent’s BPO arm, ProcessMind, and NABN will together pitch for BPO orders from US healthcare companies.
Lawkim UpStream Contact Management, a part of the Mumbai-based Godrej Group, acquired US-based travel BPO company UpStream in an all cash deal.
Two Way Traffic
The acquisitions were not completely one way: overseas firms too acquired (or picked up significant stakes in) Indian BPO companies during the quarter.
Philippines-based BPO firm SPI Technologies Inc. acquired Pondicherry-based publishing BPO firm Kolam Information Services Pvt. Ltd. for a reported $4 million. Kolam is expected to report revenues of approximately US$3.5 million for the year ending March 2004.
Founded in 1988 (as Pure Tech), Kolam provides outsourcing services to leading academic book publishers including Elsevier, Blackwell, Oxford University Press, Macmillan and John Wiley & Sons. Its services span various editorial functions: from manuscript development to production of books/journals, and other pre-press activities. Kolam has three production facilities with 300 employees in India and an “onshore” facility in St. Louis, MO (USA).
The quarter also saw iSeva, which had raised $8 million from e4e, being acquired by US-based BPO firm ECE.
Worldzen, which had raised $4 million from The Carlyle Group, announced that US-based IT consulting firm Keane had acquired a 60% stake in the company and retained the right to increase its ownership over time.
UK-based professional support services firm Capita Group Plc acquired a 60% stake in Mastek BPO Limited , the BPO arm of Mumbai-based IT services company Mastek Limited. As part of the deal, valued at $0.47 million (£285,000), Mastek BPO will be renamed Capita Mastek BPO Limited. The joint venture will continue to operate from Mastek BPO’s center in Thane and serve as the delivery unit for both Capita and Mastek, focusing on back office transaction processing.
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