Blackstone buys back India BPO unit from Serco for $387m
The Blackstone Group has agreed to buy the majority of Serco Group’s India-based business process outsourcing (BPO) operations for GBP250 million ($387 million). The major asset in the deal is the former Intelenet business, which Blackstone sold to Serco in 2011.
The private equity firm acquired a 66.25% stake in Intelenet in 2007 via a management buyout, paying less than $200 million, and then sold to Serco for $634 million - its biggest exit in India. The buyback of the BPO unit represents Blackstone's largest acquisition in India based on enterprise value.
Once the deal closes - which is expected to happen towards the end of 2015, subject to various approvals - the business will be revived under its previous name, Intelenet Global Services. The existing management team, led by CEO Susir Kumar, will remain in place.
Serco is selling the asset in order to strengthen its balance sheet and to focus on its core business of supplying public services. The company will receive GBP220 million in cash plus a GBP30 million vendor loan note, which has a 7% coupon and tenor of six years, or earlier if there is a change of control of the BPO operations.
The business comprises middle and back office functions covering customer contact, transaction and financial processing, and consulting and technology services. It employs 51,000 people across BPO delivery centers, including 48,000 staff and 53 centers in India. Approximately 70% of revenue comes from non-Indian clients, chiefly in the financial services, telecom, travel and healthcare sectors.
Serco's offshore BPO operations were expected to generate GBP235 million in revenue, GBP35 million in EBITDA and GBP23 million in trading profit for the year ending December 2015. The company said in a statement that these projected figures are broadly in line with the previous year's results. Serco also has a UK BPO operation that is being wound down separately.
Amit Dixit, senior managing director and co-head of India private equity at Blackstone, described the deal as "Intelenet 2.0" in a statement. He added: "With a market leading position in the offshore banking and travel/hospitality verticals and the number one position in domestic India BPO, Intelenet has the core platform to capitalize on future growth opportunities."
India's BPO and IT services sector is a popular target for private equity. In recent years, Bain Capital paid $1 billion for a 30% stake in Genpact, while Partners Group acquired CSS Corp. for $270 million. This was followed by Baring Private Equity Asia's acquisition of a majority stake in Hexaware Technologies for nearly $400 million. Each of these investments facilitated a full or partial exit for other PE investors.
Neither is it the first time a private equity firm has bought back into a business it previously owned in India, despite the relative youth of the industry in the country. In 2014, The Carlyle Group acquired a majority stake in Newgen KnowledgeWorks, three years after selling the company.
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