From:	Baroni Limited [Baroni-Limited@tiscali.it]
Sent:	21 April 2008 09:01
Subject:	Baroni Limited - Offshoring Newsletter' - 05/08

US slowdown puts BPO buyouts on fast track - IT-ITeS sees 23 M&As at $287 m in Jan-March
The BPO deal space for acquisitions is looking hot again after a lull for over the last six months. The US slowdown is pushing more third-party outsourcing firms and captive operations to sell out, according to industry players and investment bankers. Compared to the last quarter when both potential targets and buyers were in a wait-and-watch mode, large third-party BPO firms and integrated IT and BPO players are now keen on using their cash reserves to gain scale and new service lines, while potential targets that were holding out hoping for a recovery in their valuations are now interested in exiting before further value erosion happens
Many of the smaller players which are unable to scale up are now looking to sell out. Some of the investors in these companies were planning to exit through IPOs but given the market conditions they cannot go IPO now. Many multinationals with captive back office operations of less than 5,000 people are also in the market,' said one large IT and BPO player. Two quarters ago, the firm, which had also participated in the initial round of bidding, was hesitant to make any acquisitions because the prevailing valuations were too high. 'Since then, valuations have come down by about 15%. We are actively looking at many deals,' a senior executive with the firm said.
'Firms that were valued at 2.5 times their revenues are now seeing their valuations at 1.5 times their revenues. We also see multinationals doing carve-outs of some of their functions,' said Milan Sheth, partner, Ernst & Young. The recent acquisition of RSM McGladrey's captive operations by Quatrro BPO is one such instance of a third party BPO acquiring the captive unit of a US company hit by mortgage woes.
RSM McGladrey's parent, H&R Block, was hurt by troubles to its mortgage arm, Option One, and only recently managed to conclude its sale to Willbur Ross after an earlier attempt to sell it to Cerebrus Capital Management failed. Option One, which also had a captive operation in Pune, has now nearly shut down. The captive used to employ close to 800 people at one time, said a former employee. The number had dwindled to 300 and has now reportedly closed. Option One in the US had also laid off 600 employees globally.
'Because of the recession, some of the sell-off decisions have been advanced. Unless you've made significant investments in the captive, you won't be able to make them profitable. And people are shy of making investments now,' said Abizer Diwanji, executive director, KPMG. 'Companies in the US are not willing to bear fixed costs on their balance sheet,' said Rajesh Jain, his colleague who handles BPO transactions.
In the January-March quarter this year, the IT-ITeS sector witnessed 23 cross-border deals, the same as the corresponding quarter of the previous year. These include IT services firm Mascon Global's $55M acquisition of two US-based companies-Jass & Associates and SDG Corporation, Mastek's acquisition of enterprise solutions firm Systems Task Group International for $29M and AurionPro's acquisition of Sena Systems , all of which were struck in March. Other acquisitions during the quarter were HCL Technologies' $40M acquisition of banking software firm Capital Stream, Satyam Computer Services' $35M buyout of consulting firm Bridge Strategy Group and Mindtech's $21M purchase of Infotech Consulting.
'We're getting at least one deal a day. Many of them are captives based in India and some of them are third-party BPO firms in the US,' said one BPO executive who did not want to be named. Even BPO firms, which haven't been very aggressive with acquisitions, are now drawing up fairly aggressive acquisition-led growth plans.
The Nasdaq-listed EXL Services, for instance, has so far done only small acquisition of the KPO firm, Inductis, unlike its peers WNS Global Services and Firstsource Solutions that have done multiple acquisitions. The firm, which has $102M cash on its books, is now learnt to be looking for an acquisition of a similar size and also open to cash-cum- stock deals.
'Companies are not taking decisions for two reasons. One, they're hoping for valuations to get even better as valuations have take a beating globally. The other reason is that they are still evaluating how much their businesses are going to be affected by the crisis in the US,' said CG Srividya, partner - corporate advisory services, Grant Thornton India.
With Indian IT majors starting to report their annual results and guidance for the fiscal 2008-09 from this week, greater clarity is expected to emerge about the impact of the slowdown in the US on the Indian IT-ITeS sector.	

 	
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 HYPERLINK "http://www.insurancenetworking.com/news/insurance_technology_outsourcing_BPO_IT10685-1.html" Insurers Increase Outsourcing Activity
Insurance companies have tremendously increased their outsourcing over the past two years, according to an article from Alsbridge Inc., a Dallas-based consulting firm. The increase has been across the board in functional areas, including BPO, IT, F&A and HR. The engagements involve the vast majority of large insurance companies and outsourcing providers. Many of the engagements are entering the second and third generation of agreements.
 HYPERLINK "http://www.tmcnet.com/channels/call-center-outsourcing/articles/23699-research-shows-growth-trends-outsourcing-contact-center-market.htm" Research Shows Growth Trends in Outsourcing Contact Centre Market
According to the Everest Research Institute, this market has grown rapidly to a US$55 billion opportunity today. By contrast, the offshore contact centre market is in a phase of rapid growth. Key regions such as India, the Philippines and Central and Eastern Europe are experiencing growth rates in the range of 25-60% CAGR compared with 10-12% for global contact centre outsourcing over the last three years. Those companies pursuing offshore strategies have encountered multiple challenges when trying to secure stakeholder buy-in, as well as managing transition, operations and performance. Several large companies however, have successfully developed resolution mechanisms to overcome these challenges and continue to pursue strong offshore strategies. 
 HYPERLINK "http://timesofindia.indiatimes.com/Business/India_Business/Small_US_firms_to_up_offshoring_to_India/articleshow/2949618.cms" Small US firms to up Offshoring to India
By March 2008, India had received SME outsourcing deals worth $7 billion from the US as against $6.2 billion in the previous year. This is expected to be $8 billion by March 2009 and $11 billion by March 2010. The total outsourcing from the US by that time would be $54 billion. SMEs in the US are under severe pressure to increase profitability and business margins. This will force them to outsource and even have M&A arrangements with Indian firms. India is going to be a great beneficiary of this trend. This will substantially offset or minimise the impact of the US recession on Indian industry,' said Adam Larkey, partner at Wolet Capital Corporation, a New York-based investment banking firm. 
 HYPERLINK "http://www.livemint.com/2008/04/08231809/UKbased-Carphone-Warehouse-to.html" UK-based Carphone Warehouse to set up subsidiary in India
The UK-based Carphone Warehouse Group Plc., Europe’s leading retailer of mobile phones and services, will set up a subsidiary in India early next month. 'Carphone’s subsidiary in India, expected to be live early next month, will be responsible for providing customer support to customers of Carphone’s two leading brands in UK AOL Broadband and Talk Talk,' said Joris Heeze, head of the offshore operations for AOL Broadband. Carphone Warehouse’s plan to set up a subsidiary in India comes a week after US-based AOL decided to exit the country by selling its more than 1,000-people Bangalore call centre operations to Aegis BPO Services Ltd, the back-office unit of Indian conglomerate Essar Group. 
 HYPERLINK "http://www.thehindubusinessline.com/2008/03/19/stories/2008031951550400.htm" Procurement services’ demand rising: Logica
Technology services provider Logica is upbeat on procurement outsourcing business and the company believes that more companies across. The company already has built a clientele of over 80 customers in the financial services and telecom and expects to repeat similar success with procurement. The Global Head, Finance and Procurement Services, Mr Anil Kumar Daniel, said as per analyst reports including that by the IDC, procurement outsourcing is growing faster than the IT services, finance and accounting and HR outsourcing. While about 90% of procurement work is done onsite, going forward, this will shrink to about 70% and about 30% offshored.
 HYPERLINK "http://economictimes.indiatimes.com/Infotech/ITeS/Chrysler_drives_into_India_with_BPO/articleshow/2950093.cms" Chrysler drives into India with BPO
Chrysler is setting up an 80,000 sq ft ITeS operation in RMZ Millenia IT park in south Chennai. Once it is up and running, it will be the first operation of Chrysler in India. The exact nature of the proposed centre’s operations is still not clear, but it is expected to strengthen Chennai’s claim of being among the best locations for automobiles-related ITeS globally.
 HYPERLINK "http://www.eweek.com/c/a/Infrastructure/VMware-Invests-100M-in-India/" VMware Invests $100M in India
VMware plans to invest $100M in India over the next two years, adding more engineers and developers to its staff and increasing its research and development operations with a new 82,000-square-foot development centre in Bangalore.	
 	
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 HYPERLINK "http://sify.com/finance/fullstory.php?id=14629952" India is fastest growing ITES mkt in Asia'
The IT services market in Asia Pacific (excluding Japan) is poised to reach $55.9 billion by 2011, representing a compounded annual growth rate (CAGR) of 10.5%, with India as the fastest-growing IT services market in the region and China representing the largest regional opportunity. According to Springboard Research, the IT services market in Asia Pacific, which stood at $37.5 billion in 2007 is slated to touch $55.9 billion in 2011. Ranking countries and individual IT services markets on the basis of growth opportunities, the report said that the top 10 countries in the region were China, India, Australia, Korea, Indonesia, Vietnam, Malaysia, the rest of ASEAN, Singapore, and the Philippines
 HYPERLINK "http://economictimes.indiatimes.com/Infotech/ITeS/Govt_clears_proposal_for_setting_up_ITIRs/articleshow/2922971.cms" India Govt clears proposal for setting up ITIRs
The Cabinet Committee on Economic Affairs, which met under the chairmanship of Prime Minister Manmohan Singh on Thursday, cleared the policy for setting up ITIRs, each having an area of at least 40 sq km. After IT Parks and IT SEZs, the government has cleared a proposal for creating a much larger Information Technology Investment regions (ITIRs) to give a fillip to the country's growing IT and ITeS sector. According to the proposal, while the Centre will facilitate development of national highways, airport and rail links towards the ITIRs, states will help in the local infrastructure like power, water, health, education and state roads.
 HYPERLINK "http://www.manilastandardtoday.com/?page=business2_april10_2008" RP eyes bigger share of European call centre market
The Philippines is looking at a bigger share of the lucrative European market for Offshoring and outsourcing as more companies adopt business strategies to bring down costs. The European market share of the Philippines’ $4.9-billion O&O business is 10%, while the Philippines’ market share in Europe is only 1.2%. Henry Schumacher, executive vice president of the European Chamber of Commerce of the Philippines, said 'Europe has many options. India, the biggest player in the O&O space, is visible everywhere. The Philippines is not. In a nutshell, if we want to increase our 10-percent market share in Europe, a lot of work needs to be done,'
 HYPERLINK "http://economictimes.indiatimes.com/Infotech/Software/Tata_Consultancy_signs_pact_with_US_auto_major_Chrysler/articleshow/2933083.cms" Tata Consultancy Services wins multi-year supply contract from Chrysler
Tata Consultancy Services Ltd. (TCS) said it has signed a multi-year contract with Chrysler LLC to supply the U.S. carmaker with various IT services. The nation's largest software exporter did not disclose any financial details in the regulatory filing. 
 HYPERLINK "http://www.myiris.com/newsCentre/storyShow.php?fileR=20080317171952121&dir=2008/03/17&secID=fromnewsroom&code1=&code=" Tech Mahindra secures $350M deal from BT Group
Tech Mahindra announced the signing of a 5 year deal valued in excess of $350M to provide BT with application maintenance and support services for their business critical BSS and OSS Applications and Platforms. These services will be delivered from Tech Mahindra`s state-of-the-art centres of Excellence (CoE) at facilities in India and a new facility being setup in the UK to monitor BT`s core business processes. 
 HYPERLINK "http://economictimes.indiatimes.com/articleshow/2915237.cms" Aegis buys AOL call centre operations in India
Aegis BPO Services, part of the Essar Group, has announced the acquisition of AOL’s call centre operations in India for an undisclosed sum. Following this acquisition, which is expected to close at the end of April 2008, Aegis will take over around 1,200 AOL people and enter into the tech support segment. AOL’s call centre operations include both voice and non-voice activity and it will now be serviced by Aegis.
 HYPERLINK "http://www.eetindia.co.in/ART_8800510045_1800001_NT_6466dbb1.HTM" BT wins data centre outsourcing contract with CLSA
BT has announced that it has won its first major data centre outsourcing contract in Hong Kong with CLSA Asia-Pacific Markets ('CLSA'), the independent brokerage and investment group in Asia
 HYPERLINK "http://finchannel.com/index.php?option=com_content&task=view&id=9070&Itemid=10" Siemens receives 35M euro contract from RAG AG
Siemens IT Solutions and Services, the IT division of Germany-based Siemens, has won a four-year, $54.3M IT outsourcing (ITO) contract from RAG, a German mining company. The contract entails Siemens to operate and manage the IT and telecom infrastructure of RAG in Germany. Through the contract, RAG aims to reduce operational costs along with enhancing its IT infrastructure.
 HYPERLINK "http://www.moneycontrol.com/india/news/pressmarket/cambridge-sol-subsidiary-wins-insurance-claims-bizvwa/13/50/331562" Cambridge Integrated Services Wins BPO Services Contract from VWA
Cambridge Integrated Services, an Australian claims and risk management services provider and a subsidiary of US-based Cambridge Solutions, has won a BPO services contract from Australia’s Victorian WorkCover Authority (VWA). The contract entails Cambridge to manage all the insurance claims transactions of VWA’s 1,400 professionals. The duration and financial terms of the contract were not disclosed.
 HYPERLINK "http://www.rttnews.com/sp/breakingnews.asp?date=03/26/2008&item=40&vid=0" Unisys Signs Deal With BD To Provide Expanded Range Of Outsourcing Services
The contract entails Unisys to deliver service desk and desk-side support services apart from providing service desk support in Europe. Services will be delivered for BD’s operations in Europe, Asia Pacific, and North America including Canada through Unisys-managed service centres in Amsterdam, Budapest, Bangalore, and Shanghai
 HYPERLINK "http://www.cbronline.com/article_news.asp?guid=B89EDACA-FA9A-4EA6-BFEA-A852DC12EDF5" CSC signs $110m EPA contract
IT consulting and outsourcing company Computer Sciences Corp has won a $110m contract with the US Environmental Protection Agency's Office of Research and Development to provide information technology and information management services.	

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