Transnational business process outsourcing (BPO) major Sutherland Global Services is close to acquiring financial research and analytics firm Adventity in a deal to be unveiled as early as later this week, said mutiple sources familiar with the development.
The impending transaction is the latest indication of deal activity revving up in the mid-tier BPO space, which might also be engulfing the sectoral biggies as the year progresses.
Kumar Subramaniam, Niket Patankar and Vivek Arora set up Adventity in Mumbai with angel backing almost seven years ago, and raised the first round of institutional funding when Norwest Venture Partners led a $20-million investment in 2007. The deal will provide an exit route for the investors which also include DA Capital and CIBC.
Adventity's delivery locations are spread across Mumbai, Chennai, Houston and Dubai with around 4,000 employees providing analytical research to a slew of Wall Street investment banks, private equity and hedge funds, as well as back office work support for the travel industry.
Sources said the annualized revenue of Adventity was pegged at around $30 million, with EBITDA in the range of $3-4 million, but this could not be verified independently. One investment banking source said, the topline revenue might have suffered setbacks in the last financial year after it lost some marquee investment banking clients including Lehman Brothers. The deal size could not be ascertained even though one source said, the valuation could not exceed 1x topline revenue.
"As a policy, we do not comment or speculate on market rumours," Niket Patankar, CEO, Adventity Inc, told VCCircle. An emailed query to Sutherland did not elicit any response at the time of posting this report. Norwest could not be reached for their comments.
Sutherland would benefit from Adventity's portfolio of analytical services catering to BFSI and airline verticals, and along with the target's highly rated management team, it would provide a strategic fillip rather than pure bulking up, sources said.
Sutherland, backed by private equity investments from Oak and Standard Chartered, has over 24,000 employees spread across India, Bulgaria, Mexico, Nicaragua and Philipines and Canada.
The first quarter of 2010 has seen M&A activity pick up in the BPO sector, which included fairly significant cross border acquisitions by Indian firms. Aditya Birla Minacs acquired Compass BPO Ltd, while Intelenet Global Services, a Blackstone portfolio firm, snapped up Firstinfo Ltd. This was followed by CBay Systems India Pvt Ltd acquiring Spheris India.
The PE investments into the sector also revived in a big way with Olympus Capital investing $13 million in Quatrro BPO Solutions, Actis ploughing $50 million into Integreon Managed Solutions Inc and Sequoia picking up a small stake in eClerx for $6.53 million. Lok Capital also invested in RuralShores Business Services, while iYogi Technical Services raised $15 million from Caanan Partners, DFJ and SVB India Capital.