Partners in profit

At a reported price tag of over $200 million, it was an ambitious acquisition, even if more than one Private Equity (PE) fund was willing to support the buyout. The management of the Rs 400 crore Intelenet Global Services, led by Chief Executive Officer Susir Kumar,will ultimately hold just a fifth of the firm's equity, but it has pulled off by far the biggest mangement buyout in the country.

PE giant the Blackstone Group, which manages some $80 billion worth of assets worldwide, has picked up an 80 per cent stake in the BPO vendor to become the dominant promoter. Observes Rajesh Jain, national industry director(ICE) at KPMG, "This has been a true management buyout where the management has led the transaction by buying the company and then placing the shares with a PE investor. In that sense, this is a trendsetting deal."

It's also something that Intelenet needed badly. The firm was among the top five BPO vendors not so long ago, but has moved down the BPO rankings and probably does not figure even in the top ten today. The poor performance can be attibuted partly to a troubled history--it is no secret that the erstwhile owners Housing Development Finance Corporation (HDFC) and Barclays Bank have been wanting to sell out for some time now.

As Kumar says, a stable parent should help boost the morale of the employees and allow the firm to realise its growth plans. Apart from Blackstone's steadying presence, the fact that 400 of the 17,000 employees have turned shareholders, will also make a big difference.

As JM Trivedi, MD, Actis(South Asia) observes,"When you incentivise employees with ownership, it releases a tremendous amount of entrepreneurial energy which brings a focus to the business that might have been lacking."

The presence of Blackstone as the dominant shareholder is definitely a big plus for Intelenet. As Sanjeev Krishan, executive director, Pricewaterhouse Coopers, points out, "When you have such a large stake , you will certainly spend a significant amount of time and energy helping the company whether it is by bringing in global practices or new clients."

Krishan adds that in his experience, more often than not, support from PE players has been accretive for the firm and he believes that Blackstone can definitely give Intelenet a global edge.

That can sure come in handy for the BPO firm which today services around 65 clients. While the firm has been growing at a fast pace""it hopes to grow revenues by about 60-65 per cent in FY08 and post operating margins of around 20 per cent --given its early mover advantage and lineage it should have been higher up in the BPO rankings.

The potential for growth is not under dispute: the BPO space in India is estimated to have clocked revenues of $ 9.5 billion in 2007 and is expected to grow at around 20-25 per cent annually for the next few years.

What Intelenet needs to do is to reduce exposure to Barclays Bank which today contributes a fourth of its revenues and dampens its operating margins. Blackstone has investments in around 50 companies and some of them could be potential clients for Intelenet.

Also, Intelenet does not have much of a presence abroad and Blackstone could help the firm set up or acquire delivery capabilities overseas in countries like the UK, USA, Mauritius and the Philipines. Rather than partner other players in these markets, as it does now, Intelenet believes it should have a presence here, even if it a small outfit. Says Kumar, "The plan is to scale up operations in these places as also build up capabilities in new areas through acquistions."

Jain is confident that Blackstone will be able to leverage its investments to help improve Intelenet's operations."Apart from that, PE players also bring in better controls, systems and corporate governance and this improves the company's image with the public," he points out. For sure, it's found a good partner;it is now up to Intelenet to make the most of the relationship.