Acquisitions News: 2/2/10

GENPACT IN TALKS TO ACQUIRE INTELENET GLOBAL SERVICES
N Shivapriya, Mumbai
The Economic Times

Private equity investors in the country’s top back-office firm Genpact have initiated talks to explore a potential acquisition of Intelenet Global Services, at least two people familiar with the discussions said last week.

The talks are being held between financial investors at Genpact and Blackstone, which holds a little under 80% in Intelenet, one of the persons who spoke with ET on condition of anonymity, added. Genpact is the country’s largest BPO firm and has investments from private equity player General Atlantic and other investors, which hold nearly half of the firm. Intelenet is the country’s 14th-largest BPO firm.

The acquisition is of interest to Genpact because of the ability to derisk its revenues, which are still significantly dependent on its one-time parent, General Electric (GE), and consequently improve valuations, the person said. GE contributes around 40% of Genpact’s revenues. “Intelenet’s India business is the chief attraction to Genpact, but Blackstone is not willing to sell that alone,” the second person told ET. He said the potential transaction value could be $600-750 million.

Intelenet’s executive vice-president, Sandeep Aggarwal, said the information was incorrect and the company was not aware of it, and a senior Blackstone official responded to ET’s query saying: “I cannot comment on speculation.” A mail sent to Genpact did not receive a response till the time of writing. However, an executive with Genpact’s public relations agency said the company does not comment on market speculation and was also in the silent period ahead of its results.

Genpact, a late entrant to the India market, has not been very successful in scaling up its domestic business. Intelenet, on the other hand, has an established domestic BPO business under Sparsh BPO, an acquisition it made in 2006. Sparsh is listed on the domestic stock exchanges and had a net profit of Rs 48 lakh on revenues of Rs 61 crore for the September 2009 quarter, according to a BSE filing.

“Slowdown in the western markets has compelled internationally-focussed BPO firms to seriously evaluate risk diversification strategies. Focus will turn to markets that hold innate potential for size as well as growth,” said Alok Shende, principal analyst, Ascentius Consulting.

GE, which holds 18% in the company, is also said to be interested in exiting its holdings. Genpact’s GE business has been under strain and its substantial contribution to revenue has been a cause of concern. Reducing GE exposure and getting a foothold in the rapidly growing domestic market will fetch Genpact’s private equity investors, General Atlantic and Oak Hill Capital Partners, which are said to be keen on exiting, a better valuation.