The TCS-Citigroup deal yet again highlights the captive BPO strategy of multi-nationals. With the financial turmoil in the US market, global banks are reorganising their business strategy and many of these captive BPOs may be up for sale.
According to DQ Top 20, 2007 estimates, captives in 2006-07 contributed less than 40 per cent to the total BPO revenue from India, which dropped sharply from about 66 per cent just about two years prior to that.
Industry sources say there are over 100 captive BPOs in India (excluding pure development centres). Most of them find the rising cost of operations difficult to handle, and hence the talks of many being put on the block.
It was only recently that the AegisBPO of Essar concluded the buyout of the back-office operations of AOL.
Many of these BPOs may be grabbed by Indian companies as analysts believe that acquisitions will be concluded to shore up revenues, which are getting impacted due to slower ramp-up of contracts.
With the US, UK banking turmoil gnawing away at the growth of Indian IT firms, domestic firms are scouting for acquisitions with renewed vigour. IT firms are expected to make at least 6-8 more acquisitions, similar to the Axon bid by Infosys Technologies and HCL Technologies, over the next 12 months as they try to shore up their top lines in a bid to meet their revenue guidance.
Still, the acquisitions may be fiercely competitive with each company attempting to fight for good clients and business propositions. After over a year of haggling over the price, India’s largest IT services provider TCS pipped other bidders such as Genpact and IBM to buy out the back-office operations of Citigroup for over Rs 2,400 crore. Firstsource, which was in the race too, had dropped out earlier last year since it found the price exorbitant. Analysts feel that TCS has paid 11 times on earnings of Citi’s BPO, which is expensive given current valuations that are dipping.
The deal took over two years to finalise due to companies not agreeing on valuations. The deal with Genpact reportedly fell through as it had sought an exclusivity agreement which Citi turned down. IBM, say sources, expressed discontent with the riders that the deal carried.
Moreover, TCS had already expressed its desire to ramp up its BPO operations by acquiring the offshore captive units of large companies. The company had already bought over two small captive units in India earlier.
In TCS’ case, CGSL – which has over six lakh square feet of combined offices in India, handles multiple operations for Citigroup entities globally. This includes cards, consumer finance, retail banking, capital markets and banking as well as global transaction services. It has more than 60 million customers in Asia, Europe, Africa and North America. It caters to operations in more than 40 countries and Citigroup is present in over 100 countries.
