New Delhi: After registering a CAGR growth rate of 35% in he last two years, India’s IT/BPO industry is expected to continue growing at a healthy 30% plus on a year-to-year basis for at least another four years, according to industry chamber Assocham.
The Chamber in a statement stated that Offshoring is now a proven formula, which has enabled in particular Tier 1 (TCS, Infosys and Wipro) but also Tier 2 Indian players to grow at a much faster pace than their global peers (IBM, Accenture, EDS, CSC, Fujitsu, Cap Gemini and Atos Origin). As a result Indian players are gaining substantial market share at the expense of Western players.
The paper states that Indian IT Services and BPO players have been moving up the value chain and in most cases are integral to the business of the client. Considering this positive outlook towards Indian IT/BPO service industry, PE/VC investors are looking at investing in these companies to be part of India’s growth story.
Besides investing in mainstream companies, investors are increasingly looking to invest in companies with niche focus such as Flextronics Software System (specialized IT services in telecom domain), Geometric software (engineering services CAD/CAM/CAE), Applabs (software testing), Quattro (BPO firm focusing on new offerings such as legal outsourcing, analytics, clinical data management).
Some of the key deals that have happened in this space are: Carlyle Group ($170m in BPO sector), Chryscapital UTI Ventures ($28m in Networking and System Integration), IDG Ventures India ($2.0m in Business Intelligence & Analytics Software Product) and other names like Cargill Ventures, UTI Venture, Argonaut, Norwest Venture, Carlyle Group, Olympus Capital, Intel Capital, Trident Capital, Cargil Ventures and Jafco.
Across all sectors Venture Capital VC/PE firms obtained exit routes for their investments in 37 Indian companies during 2006, including 19 via IPO’s. For 2005 this figure stood at 41, including 17 via IPO’s.
Exits are lagging investments and given that as little as two years ago total PE investments was well below 100 per annum, this by and large explains the big difference between total number of investments in 2006 and total number of (disclosed) exits.
Of these 37 disclosed exits in 2006, Information Technology saw the maximum number of exits witnessing as many as 10 exits.
In large M&A exits, a transaction that grabbed attention was the acquisition of 52% stake in Mphasis-BFL by EDS for $380 mn. Baring Private Equity Partners realized about $170 mn by selling a 23.38% stake in the company.
In the form of exit where one PE/VC sells to another PE/VC, Baring Private Equity Partners exited from Cybernet Software System and its subsidiary Slash Support by selling it stake to SAIF for$ 21 mn. In a large buyback exit route, Citigroup sold its 23% stake in Progeon (BPO service provider) for$115 mn to its parent, Infosys. Citigroup invested $20mn in 2002, making a large profit.
The space of IT and BPO is likely to get even more crowded in countries like India where investments are being made and profts being booked.