In one of the biggest private equity exits from an Indian firm, Blackstone, along with other shareholders of the business process outsourcing company Intelenet, have struck a deal to sell the firm to UK’s Serco for £385 million ($634 million or Rs 2,850 crore). This includes contingent cash payments of up to £50m through to December 2013. These are dependent on the delivery of additional revenue to Intelenet from Blackstone portfolio companies and Barclays.

Avendus Capital advised Serco in the deal, while Barclays Capital served as financial advisors to Intelenet.

Stake details

HDFC, along with Tata Consulting Services (TCS), had set up Intelenet as a 50:50 joint venture back in 2001. HDFC acquired TCS’ 50 per cent stake in Intelenet for Rs 161 crore in July, 2004, and sold it a month later to Barclays for Rs 164 crore.

In 2007, Blackstone bought an 80 per cent stake in Intelenet for $260 million, according to VCCEdge, the deal research platform of VCCircle. Last October, Barclays picked up 12.75 per cent stake in the holding company of Intelenet for an undisclosed stake. HDFC also bought back a minority stake some time ago and held a small stake in the company.

At the time of sale, Blackstone owned 66 per cent stake, Barclays 12.75 per cent, HDFC 4.5 per cent and the remaining 16 per cent was held by the management team.


For the London-based Serco, the deal gives it a strong foothold in an emerging market and analysts see this as a good deal for the sellers as growth has slowed down and the valuations for BPO firms have stagnated over the recent past. Many private investors in BPO firms are reportedly looking for an exit route.

For the year to 31 March, 2011, Intelenet’s revenue was approximately £170 million ($272 million) and adjusted operating profit was £19 million ($30 million). This means the acquisition cost, depending on the level of contingent payments, is on a multiple of 17.6-20.3 times adjusted operating profit and 10.5-12 times EBITDA for the year to 31 March, 2011.

“Expectations are that Intelenet will continue to achieve organic annual revenue growth of 10 per cent to 15 per cent and maintain its adjusted operating profit margin, before the net cost synergises, at around 12 per cent,” the company said on Tuesday. Intelenet has recently taken its listed arm Sparsh BPO Services Ltd private and by default, that firm will also come under Serco.

The Intelenet acquisition is expected to be accretive to earnings in the first full year, with returns meeting Serco’s cost of capital in the third full year of ownership. The acquisition will be fully funded from Serco’s debt facilities.

Headquartered in Mumbai, Intelenet operates 34 global delivery centres across seven countries and has over 32,000 employees, out of whom 28,000 are graduates. It has a strong customer base of international companies in the UK, the USA, India and elsewhere around the world. Key customers include Barclays, State Bank of India, Travelport, Apria Healthcare, BSNL and Aircel.

It offers a broad range of middle and back office services including transactional, process and voice support, finance and accounting services and business transformation consulting such as process redesign and re-engineering. The international BPO business primarily focuses on three vertical markets -- banking, financial services & insurance; travel, hospitality & transport; and healthcare.

The deal will bolster Serco’s global delivery capabilities while giving it a strong presence in the Indian BPO space. This can be seen as a positive, although some analysts feel that the company is paying a high premium for the business.

This also marks yet another large transaction for Serco which had paid $423 million for the US government services provider SI International three years ago. Serco scrip was up 2.87 per cent at the London Stock Exchange after the deal was announced.

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