Business process outsourcing company HOV Services Ltd, which is a part of the portfolio of Santa Monica-based private equity firm Handson Ventures, has completed the merger of its subsidiary HOV Services LLC with private equity firm Apollo Management’s portfolio firm SourceCorp.
The combined US-based firm, named as SourceHOV Inc., becomes a 50:50 joint venture between HOV Services Ltd and SourceCorp with annual revenues of around $481 million and over 14,000 people on board. However, in March this year, the company had stated that the combined entity would be called SCH Services.
Morgan Stanley acted as the global financial advisor while Willkie Farr & Gallagher acted as the international legal counsel and Ernst & Young was the financial consultant to HOV Services for the transaction that was initially announced in March.
SourceHOV Inc. has also secured funding from a consortium of banks led by UBS Investment Bank, Credit Suisse and Jefferies – totalling $625 million. The funding will help refinance existing debts of both the firms involved in the merger, besides securing working capital for growth.
The combined entity will bring scale to operations, serving more than half of the Fortune 100 companies, HOV Services said. The merged company will deliver end-to-end solutions including document-centric applications, workflow management, finance and accounting, publishing, healthcare, financial and HRO services, government solutions and specialised consulting services for construction management, tax benefits, legal claims settlement and legal consulting.
Ed Bowman, CEO and president of SourceCorp, will remain the CEO & president of the new joint venture.
The deal structure, wherein an indirect subsidiary of a listed company merges with another firm, gives flexibility to HOV and SourceCorp not to trigger any potential requirement for making an open offer. This is in spite the fact that HOV Services LLC contributes the bulk of HOV Services Ltd’s revenues.
For the 12 months ended December, 2010, HOV Services Ltd had consolidated revenues of around Rs 728 crore ($165 million), as compared to HOV Services LLC’s revenues of $159 million. This means over 95 per cent of HOV Services Ltd’s revenue comes from its indirect subsidiary that is now a 50:50 JV with SourceCorp.
HOV Services Ltd scrip was up 1.5 per cent at mid-day trade in BSE on Tuesday, quoting at Rs 100.10 and valuing the firm at Rs 125 crore ($28.5 million). After hitting Rs 172 last October, the shares had more than halved to Rs 73 in the market correction in February, but has made up for some of the losses over the past few weeks.