India?s third-largest IT services firm Wipro Technologies has started targeting private equity (PE) firms to tap into their portfolio companies, creating a new business channel. New CEO TK Kurien, who has been restructuring the firm to reinvigorate sales, has mandated the company?s former head of global sales Martha Bejar to grow the PE business in partnership with other business units.
?PE is a big opportunity where we can create a platform for them to go out and do shared services. It is a new initiative,? Kurien confirmed. ?We are trying to start something new. Instead of approaching portfolio companies directly, we would want to work with private equity firms and let them influence their investee companies to use a vendor that delivers value,? CFO of Wipro Technologies Manish Dugar told FE.
IT shared services across a group of companies has been considered for long but gained traction ever since the recession when cost pressures hobbled enterprises. Typically, shared services imply sharing of IT infrastructure such as server and storage capacity as well as software applications. Wipro is likely to create a platform from where investee companies of a PE can be serviced, helping them cut costs significantly.
Wipro did work with two PE players earlier but could never break into all their portfolio companies, executives said. ?Earlier, we could manage one large account from a PE company. Typically, a vertical head started a relationship to sell more into the account. We realised that if we wanted to sell to an investee company belonging to a different vertical, the interest levels dropped,? an executive said.
Wipro has therefore decided that an executive who does not head a vertical, or business unit as the firm calls it, should head the PE business. Martha B?jar, who will take on the operating roles for the PE business, does not head a vertical but is the chairperson and CEO of Infocrossing, a firm Wipro acquired in 2007.
Analysts termed the PE route interesting since PE firms are typically long-term investors ? the average holding period for PE investors is 5.3 years. According to a study ?Private Equity and Leveraged Buy-outs,? by the Policy Department, Economic and Scientific Policy of European Parliament, only 16% of all PE exits take place in less than 24 months. After five years, buyout investors continue to be involved as majority shareholders in more than 45% of their investments.
Market watchers commented that some companies have tried a similar approach with industry associations ? Microsoft, for instance, sold into the textile cluster in Tamil Nadu. Targeting funding partners appears to be a fresh approach.
?It will work for Wipro for multiple reasons. Their cost of sales and administration would go down because they don?t have to approach the portfolio companies of a PE separately. Two, Wipro will have the ability to influence hardware infrastructure vendors if the account scales,? TR Madanmohan, managing partner of consulting firm Browne and Mohan said.