Revolutionary acquisitions in BPO business


We are calling it ‘Revolutionary acquisition’ in our title because the BPO business is planned to be acquired outside India that too in place like North America and by an Indian conglomerate!

The title to this article is so intriguing because when the world is setting up BPO operations in India to cut cost, an Indian firm is acquiring a BPO unit in the advanced N. America. This acquisition raises the answer, really, is one of evolution in the early years the kin of business that trickled down to Indian firms wasn’t exactly critical.

Transworks, an Indian BPO firm owned by the Aditya Birla group announced plans to acquire ‘Minacs Worldwide’, a Canadian BPO firm, for $269 million. Minacs with a turnover or $265 million is four times the size of Transworks. The merged entity will be among the top ten BPOs in North America.

The move will also propel Transworks into a league of large Indian BPOs like IBM, Daksh and WNS. More importantly, the deal also offers an insight into how Indian BPO business will evolve in the future.

The intention by the Top management of the conglomerate AVB group of India is to merge Minacs, currently listed on the Toronto Stock Exchange, with Transworks and later offload up to 10 % of the merged entity to a Toronto based private investment firm, Riechmann Hauer Capital Partners.

As part of the deal, Trans Works has acquired a holding of 46.4 % in Minacs Worldwide for a consideration of US $ 125 million. This will be followed by an open offer to acquire the balance holding in Minacs making it a 100 % subsidiary of TransWorks bringing the total cost of acquisition to about $269 million.

The strategy of the acquisition according to the chairman is to emerge as a large global BPO services provider and expand their base worldwide.

More Deals to come:

Indian firms are demonstrating competence and the significant work started will be more to come by. But by no stretch could it be called mission critical. That is because most customers are wary of sending such work to location distant from where their key operations are. This aspect has made the AV Birla group think of operations in North America. In any case their existing clients in N. America were, already asking for it.

A few Indian firms had already started to move in that direction IBM Daksh, HCL, Wipro and most recently ICICI One Source. This raises some more questions. Moving to a place where skilled manpower resources are costlier than India the cost advantage of running a BPO firm in India seems to be tentatively lost. Where and how can the BPO firms make their money? The answer to that is somewhat ambiguous.

Most BPO firms in other parts of the world have operating margins in the region of 10-11%. Indian firms have margins in the region of 23-24%. The best run foreign firms come closer to achieving what the Indians do.

Transwork CEO says when the BPO at a foreign location is managed intelligently and by leveraging the expertise gained in India, they can make decent enough margins. The difference in the earnings margin can be made up by engaging larger clientele in lucrative assignments. That is what is on the minds of Indian BPOs.

For of now, the Transwork-Minacs deal is the beginner of such deals with more to come in the near future.