UK’s Serco buys Intelenet for up to $634 mn

UK’s Serco buys Intelenet for up to $634 mn

London: Britain’s Serco is to buy Indian outsourcing company Intelenet for up to £385 million ($634 million) as part of a drive into higher-growth overseas markets.

London-based outsourcer Serco, which wants to bolster its international businesses after recent strong growth, said the deal would provide access to markets that are forecast to grow by around 15% per year in the medium term.

“The international BPO (business process outsourcing) market is growing quickly as companies seek out new ways to improve their service and reduce costs," chief executive Chris Hyman said in a statement on Tuesday.

Intelenet, which provides outsourcing services such as accounting to the private sector in India and internationally, operates in seven countries, working mainly in the financial services, travel, healthcare and telecom sectors.

Serco said it expected to see growth in servicing the banking, financial services and insurance markets in the US and UK, as well as in India’s domestic market, which it said is expected to be worth $2.5 billion by 2014.

Shares in Serco were up 2.8% to 573 pence at 0951 GMT in London on Tuesday, outpacing a 1% rise in the FTSE 100 index.

“Clearly this is not cheap and we doubt if it will enhance earnings for Serco until 2013 at the earliest," Seymour Pierce analyst Kevin Lapwood wrote, echoing the general market view.

“However, it is an important strategic move for Serco since it will enhance its credibility in the higher margin BPO market and increase its international exposure."

In 2008, Serco paid $423 million for US government services provider SI International in a strategic purchase that significantly increased its scale in America.

Serco, which makes 40% of its revenues overseas, said the total acquisition cost of up to £385 million for Intelenet included contingent payments of up to £50 million and would be fully funded from its debt facilities.

Intelenet, which is based in Mumbai, reported revenue for the year to 31 March of approximately £170 million with adjusted operating profit of £19 million.

Intelenet makes around three-quarters of its revenue from international BPO and has an order book of £500 million over the next five years.