With a recent spate of acquisitions in the technology space globally, the Indian captive space could be next hotspot for mergers and acquisitions. Several India-based captives of multinational companies have already been acquired in the past one year. The acquisition of a global financial services firm?s captive in India by Cognizant Technolgies is the latest in the series of such sell-offs.
Captives are outsourcing centres set up by companies which solely service the parent company or their sister concerns unlike third-party IT and BPO companies that have a host of clientele. According to market estimates, there are over 300 captives in the country with varying sizes, which ranges from 50 employees to over 10,000 employees.
According to a study by knowledge services firm Evalueserve, several large and small captives in the country are in trouble, and that has intensified post the global economic crisis. Of the 100 captives studied by the firm, 61% of them have gone through varying degrees of turbulence in the past four years, with 27% of them have either shut down or sold to third-party service providers.
?While the global economic crisis sure has had a big impact with the parent companies in many cases becoming cash strapped and wanting to jettison their captives, in some cases there is a clear lack of management focus,? said author of the report Manoj Madhusudanan, vice-president and head of business research at Evalueserve. Captives, which have less than 500 employees, are expected to have been the worst hit.
?Thirty four per cent of the captives studied either remained stagnant or have scaled down. These captives are under great pressure, and we may see many of them exiting in the next 1-2 years,? said the report. Considering the fact that valuations have significantly come down in the past one year, many of them could be possible buy-out targets for companies such as Infosys Technologies, which has already announced its interest in acquiring captive centres. Madhusudanan said some of the captives which are looking out will find it difficult to get a premium and their exit could be much harder. This is especially true for the smaller centres.
Offering a different view, Nikhil Rajpal, principal of IT consultancy firm, Everest Group said while some of the captives stopped growing during the downturn as companies tried to get more value out of the existing business rather than grow it, the last couple of months have seen them growing again as signs of recovery have started appearing. However, he acknowledges the fact that in case of smaller centres, it is difficult to build scale. ?Captives are now revaluating their business model. They are looking at newer sites, and are adding more value to the work done out of the captive. In fact, low-end part of the business is even being outsourced to third-party vendors,? he said.
The recent past has seen the sale of Citigroup?s BPO arm, Citigroup Global Services to TCS and its technology captive, Citi Technology Services Ltd to Wipro Technologies. HCL Technologies bought Adaptech?s India technology centre, Symphony Service bought biotechnology firm Biolmagene?s India R&D centre and the AOL contact centre in India was sold to Aegis BPO. Besides, companies such as Bose Corp, PowerGen, Riya, Inc and BelAir Networks shut their captives in India.