Title: Investment and Consolidation Trends in the Outsourcing Sector The India Story
1Investment and Consolidation Trends in the
Outsourcing Sector(The India Story)
- Rahul Bhasin
- Managing Partner
- Baring Private Equity Partners (India) Ltd.
- Outsource-World
- New York, 17-18 October 2006
2Presentation Layout
- MA in Indian IT/ITES Sector - Facts
- Classifying MA by geography and service
offering - Future Expectations
- Investment Trends (Financial Investments)
- Impact on Stakeholders
- Participation in Consolidation is it a Choice?
- About Baring Private Equity Partners
3MA in Indian IT / ITES Sector
- IT ITES exports from India have grown almost 4x
in last five years, reaching US 23.4 billion
dollars in FY 2006 - Tremendous growth in size and scale of companies
has accelerated the MA activity in recent years - Over US 1.3 billion in MA in CY 2005, around 80
deals - In terms of number of deals, IT/ITES was the
largest contributor among all sectors - In terms of value of deals, it was third after
Telecom and Energy - In excess of US 1 billion in first four months
of CY 2006 around 30 deals - MA activity in IT/ITES sector growing rapidly
- Deal sizes are getting bigger
Source Grant Thornton Nasscom
4Classifying MA
New Geographies
Same Geographies
Same Services
New Services
5Break-up of MA Activity in IT/ITES Sector in
India
73 - Same geographies, new services
27 - New geographies, same services
Negligible activity in other classifications
MA in Indian IT/ITES industry reflects
globalization and diversification of service
offerings
6Indian Scenario - Same Geographies, New Services
- Examples
- Oracles acquisition of iFlex (core-banking
solution, US 600 million) - Subexs acquisition of Azure (revenue assurance
and fraud management, US 140 million) - Wipros acquisition of Spectramind (BPO services,
US 100 million) - Flextronics acquisitions of Future Soft and
Deccanet - Characteristics
- Global players acquiring Indian vendors
capabilities various deal sizes from small to
large - Indian vendors acquiring companies small to
medium size deals
7Indian Scenario - New Geographies, Same Services
- Examples
- EDS acquisition of Mphasis BFL (US 380 million)
- RR Donnelley acquisition of Office Tiger (US 250
million) - TCS acquisition of Comicrom BPO in Chile (US 23
million) - Secovas acquisition of Ultralink
- Characteristics
- Global IT services vendors acquiring execution
capability in India. Tend to be large deals as
scale is a must - Indian vendors acquiring execution capability in
other geographies. Small to medium size deals - Indian vendors acquiring customer base abroad.
Small to medium size deals
8Future Expectations
- Would expect to see larger acquisitions going
forward by Indian companies, primarily in new
service areas - Drivers
- Indian companies are cash-rich. Total cash on
balance sheet of TCS, Infosys and Wipro alone is
around US 4 billion - Companies have grown to a size where small
acquisitions do not have short to medium term
impact - Increased risk appetite ability to assimilate
large acquisitions being built over period of
time Wipros string of pearls strategy - Success factors
- Guarding against excess diversification
- Quick assimilation and integration of the
acquisitions
9Investment Trends (Financial Investments)
- Majority of transactions being done currently
- Hiving off captives / divisions of large firms
- GENPACT (from GE by Oak Hill and General
Atlantic, US 500 million) - Flextronics Software Systems by KKR (US 900 mn)
- Growth capital / turnaround for existing
companies - Platform plays in niche areas
- Secova, Pharmarc, Quatrro, Newgen
- Secondary deals
- Softbanks purchase of Barings stake in
Slashsupport - No Greenfield activity in previously hot areas
- voice-based support, CRM etc.
10Summary
- MA activity in Indian IT/ITES industry
- Acquisition of execution capability in India or
abroad - Acquisition of customer base abroad
- Acquiring new service offering capabilities
(expected to accelerate in the future) - Investment activity in Indian IT/ITES industry
- Hiving off large captives
- Growth capital / turnaround
- Platform plays in niche areas
- Secondary deals
11Impact on Stakeholders
- Employees
- ves Provides global opportunities for growth
- -ves Improper integration could lead to
uncertainty and dissatisfaction
- Customers
- ves Increases range of services and
geographies to choose from - -ves Integration issues could lead to customer
dissatisfaction
- Shareholders
- ves Increases growth opportunities, and
scalability, leading to greater shareholder
returns - -ves Excess diversification, improper
integration could hurt shareholder returns
- Vendors
- ves Provides a platform for global growth
along with the company - -ves As company becomes larger, older vendors
could be marginalized
12Participation in Consolidation is it a Choice?
- Non-participation by Indian companies
- Only after careful evaluation of customer base,
service offerings, verticals and execution
capability - If do not have strong in-house ability to build
the above, will be left behind - Non-participation by global MNCs
- Alternative is to build execution capability and
diversified service offering in-house - More amenable to execution capability (Accenture
adopted organic route) rather than diversified
service offering (IBM acquired Daksh, Oracle
acquired iFlex etc.)
13About Baring Private Equity Partners
- Globally
- Founded in 1984
- One of the largest private equity players
- Operations in Latin America, Europe, Russia,
Asia, India - Over USD 2 billion under management
- In India
- Started in 1997, Headquartered in Delhi
- Best performing fund of 1998 vintage
- In 2005, raised Baring India Fund II. Theme
India growth story - Team of 9 investment professionals
14Thank You