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Aegis looks for Asia, America acquisitions

Chief executive officer Sandip Sen says Essar may look at an IPO at an appropriate time to raise funds

Mumbai: Aegis Ltd, the Essar group’s business process outsourcing (BPO) arm, plans to acquire a mid-sized company in Asia or the Americas to scale up its global delivery model by having a presence in newer geographies, according to chief executive officer, Sandip Sen.

The BPO has made over 18 acquisitions till date, and is now scouting for potential purchases “in countries such as Malaysia, Indonesia, Brazil, Columbia or even a near-shore (a location closer to the client) market to the US such as Jamaica", Sen said.

“We have successfully integrated the acquisitions we did between 2005 and 2010. We typically look out for mid-sized companies that provide us the skillset we need," Sen said.

But how will Aegis fund further acquisitions considering the high debt of its parent Essar group?

Essar has overall term debt across companies “in the range of $14 billion", as reported by Mint on 26 February.

“The amount of acquisitions Aegis has done is rare, and has been possible due to the strong parent backing. They were trying to sell in the past but could not get the right valuation. I don’t think Essar group wants to integrate Aegis’ BPO operations into its core business. It seems the whole idea is to grow the company and sell it off," said a consultant from one of the big four consultancy firms, requesting anonymity.

Sen countered, “Essar today is very committed to Aegis. What we are looking at is to grow this business and at an appropriate time, they (Essar group) might look at an initial public offer (IPO) to raise funds. We have strong cash flows (he did not disclose the exact amount) and Ebitda (earnings before interest, tax, depreciation and amortization) margins, that will help us finance our acquisitions."

According to Sen, clients are “sometimes a little reluctant to offshore business 8,000-9,000 miles away. We call it ‘rightshoring’—a combination of offshore, onshore and near shore. There is competition in the BPO industry but our strength is our geographic model".

The company has nine centres in the US, six in Argentina, one each in Peru and Costa Rica other than seven centres in EMEA (Europe, the Middle East and Africa) and 32 centres in the Asia-Pacific region.

“As the pendulum of offshore (other than the client location) and onshore swings, there is higher degree of unemployment than before. In North America, the sentiment is more for onshore delivery of services," said T.J. Singh, vice-president, research at Gartner Inc. “It helps BPO firms to have more facilities in these locations to service demand from clients in developed markets like North America."

The BPO sector, according to a 10 April Gartner forecast, will grow 5.8% in 2013. According to Nasscom’s 2013 annual strategic review, India’s business process management, or BPM, (the term that Nasscom uses for BPO) exports grew at 12.2% to $16 billion in fiscal 2012.

Sen said Aegis’s compounded annual growth rate has been as much as 40% since 2006. “Since 2006, Aegis has roughly grown about 7.7 times from $130 million in 2007 to over $1 billion in fiscal 2013," said Sen.

Aegis was ranked 11 among the top 15 IT-BPO companies and third largest among BPO companies by the Nasscom grouping in 2011-12.

In the last two years, Aegis has also set up its social media division and launched QPO, or quality process outsourcing, to measure how good customer service is, Sen said.

The challenge facing all BPOs is how to add more value for clients through customer service management and analytics as the voice services business gets commoditized, according to analysts.

“I think the BPO industry will have to climb up the value chain just like the IT industry," said Pradeep Udhas, partner, KPMG, adding that BPOs need to bring social media into play as “voice-based services alone are not enough and are becoming more and more irrelevant, especially in the West".

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