Apax adds to global outsourcing exposure
"Including GlobalLogic, Apax funds would have invested about $1.5 billion of equity in the outsourcing space in a number of transactions around the world," says Shashank Singh, partner at Apax Partners and head of their India office. "Technology spend globally by companies and governments is in the order of $1 trillion while operations spend is another $1.5 trillion, so it is a huge market."
Within the outsourcing sector, sub-segments have been penetrated to different extents. The sector isn't growing at the 30% rates it was in the 1990s, but Singh claims there are areas within a handful of industries where long-term growth of 15-20% is achievable. Apax already has exposure to the relatively penetrated IT offshoring segment through a stake in iGate, which acquired Patni Computer Systems for $1.2 billion in 2011.
Several new horizon industries have seen less investment and faster growth, but they essentially serve a similar type of need. Outsourced product development (OPD) and research and development (R&D) is one of them, and GlobalLogic (GL) is part of this.
The firm focuses on software product design and development as well as quality assurance, product support and consulting services. Clients include Coca Cola, Oracle and Microsoft and others across digital media, electronics, healthcare retail and financial services.
Headquartered in the US, GL operates engineering centers in India, Argentina, China, Ukraine, and the US, while its design studios are located in San Francisco, New York, and London.
Apax will acquire a majority stake in GL, buying out existing investors WestBridge Capital, New Atlantic Ventures, New Enterprise Associates (NEA), Goldman Sachs and Sequoia Capital. New Atlantic was the sole investor in GL's Series A round, with WestBridge and NEA coming in on the Series B in 2006. Sequoia invested in 2008 and Goldman made a pre-IPO commitment two years later.
While the financial terms of the transaction were not disclosed, sources say the deal is worth $420 million.
"The hired engineering component of outsourcing has over time spread from software and telecom to other industries such as industrial automation, automotive and aerospace," Singh says. "The one common theme is that the engineering component in most of the goods and services these industries produce is increasing and there continues to be a shortage of quality engineers."
In the OPD segment there is no clear market leader, with the likes of GL, Symphony Teleca, Persistent Systems and Russia-based Epam all roughly the same size. So with GL, Apax saw an opportunity to create that market leader over the next few years.
The GP has helped iGate penetrate into Apax portfolio companies for IT work. GlobalLogic is expected to do the same in the OPD and R&D services space.
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