Baring Private Equity funded PharmARC Analytics Solutions Ltd, a knowledge process outsourcing (KPO) firm focused on pharma and healthcare verticals, is hitting the road for fresh capital even as it would consider strategic opportunities, including a stake sale, multiple sources tracking the development told VCCircle.
A Mumbai-based investment bank, a deal specialist in information technology industry, is working with the seven year-old start-up in which Baring India Private Equity Fund II invested $10 million in 2006.
Atleast two sources directly familiar with the situation said the Bangalore headquartered firm, founded by Siraj Dhanani and Amit Sadana, has held early deal talks with one Indian tech major even though these discussions have not made substantial progress.
Baring holds a large minority stake for its investment made over four years ago.
When contacted, a company spokesperson declined to comment on speculation. Baring PE's Keshav Mishra, looking after the firm's existing portfolio, said the fund was not looking to exit the investment. He added, interestingly enough, that the investee company has no fundraising plans in the immediate future.
Baring's funding was employed for expanding its onsite service delivery and client management in US and Europe, and for establishing a presence in Asia-Pacific.
The KPO firm's FY09 revenue was pegged at Rs 49 crore with EBITDA of around Rs 10 crore. PharmARC, with last year's revenue estimated at around Rs 60 crore, could be looking at least 3x valuation (of topline) for potential stake sale, one source explained.
PharmARC provides sales and marketing analytics, and business consulting services to the global pharmaceutical and healthcare industries. The team comprises over 250 analysts including domain experts, technical analysts, statisticians, physicians, and software engineers and its client list includes over 50 major healthcare companies in the world, according to the company's website.
A second source said HCL Technologies has had early look at the asset but the discussions did not progress.
The healthcare KPO space also saw some action in recent past. US software services firm Cognizant Technology Solutions acquired marketRx Inc for $135 million (Rs 537 crore) in cash. The move gave Cognizant a large presence in the market to provide software solutions that can improve the marketing performance of pharmaceutical and biotechnology companies.
Earlier, New York-listed BPO major WNS acquired another Bangalore-based analytics firm Marketics for an estimated $65 million. Start-up ventures in KPO, which gathered reasonable size, has not been averse to sell-offs on the back of attractive valuations and threshold challenges. "Scaling up in this domain has better prospects when you are part of a larger tech platform, and for the big players it is about acquiring niche assets for mining the client better," a banking source argued.
Smaller companies with specialized expertise in niche areas have always been the targets for big technology companies. In the last two years, Wipro has acquired more than a dozen firms at prices ranging from $20 million to $600 million.
Ambitious projections have been made on the prospects of India's KPO industry in the past. One such report by Global Sourcing said KPO business opportunity would reach $17 billion by 2010, of which $12 billion would be outsourced to India. Another report by Evalueserve said that India will capture more than 70 per cent of the KPO territory by 2010. India's skilled talent pool working in KPO was expected to touch 2.5 million by this year even as the current size of this ITeS segment is well below these projections.
There's no firm data on size of India's KPO, which by definition involves high-end analytics work. This core activity remains an extremely niche play within the overall business process outsourcing (BPO) industry, and often the KPO work is characterized by general outsourcing revenues.