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Sutherland to buy Apollo Health St

Jul 13 2012, 10:29 IST
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SummaryUS BPO is close to signing a Rs 875-cr deal to purchase rival Apollo Health Street.

NY-based firm close to signing R875-cr deal

American business process outsourcing (BPO) company Sutherland Global Services is close to signing a R875-crore deal to purchase rival Apollo Health Street, owned by the Reddys of Apollo Hospitals, sources privy to the development said.

Apollo Health Street, a healthcare-focused back office firm, will sign an agreement with the Rochester, New York-based, integrated BPO company in a few weeks, a person with direct knowledge of the development said. The deal signals a shakeout in the BPO industry driven by pressure from private equity investors to exit, move by companies to trim debt and others to scale up.

The Reddys, who own the Apollo healthcare chain with 54 hospitals, own 54% stake in the back office firm that earns nearly 90% of its business from American hospitals and healthcare firms. The remaining stake is held by PE funds Temasek Holdings and One Equity Partners. Investment bank Barclays Capital is advising the promoters.

Sutherland media relations head Prabhu Sampath and Apollo Health Street marketing and communications director Susan Bender did not respond to an email from FE.

The acquisition will help Sutherland Global Service to scale up its healthcare business both in India and the US as America spend more money on healthcare. According to the US Centre For Medicine and Medicaid Services, spending on healthcare in the US will rise to $3.9 trillion by 2015 from $2.1 trillion in 2011.

Apollo, which had 2,295 employees, according to its 2008 IPO prospectus, has grown through acquisitions in the US. It acquired Atlanta-based healthcare back office Zavata and Heritage Web Solutions — which provides technical support to hospitals – and Armanti Financial, a hospital billing and receivables management company.

Dilip Vellodi started Sutherland Global Services in 1986 and chose a ‘service delivery model’ through which he earned a percentage of the cost saved for his clients rather than sticking on traditional parameters of labour arbitrage or time spend to deliver work. Standard Chartered private equity fund and Oak Investment partners own significant stake in the BPO.

“Consolidation is bound to happen as clients are under pressure for profit margins and this pressure is felt by BPOs,” says investment bank Dynamics Orbits MD BL Bajaj. “As companies in the US and Europe face pressure to execute work in house and labour arbitrage shrinks, smaller BPOs will be acquired by larger companies.”

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