Overview:
On 15 June, 2018, The Blackstone Group sold its stake in Outsourcing services provider Intelenet, for the second time since 2011, to French IT / ITeS services provider Teleperformance for c.$1 billion.
Headquartered in Mumbai, Intelenet was setup in 2000 as a joint venture between HDFC and Barclays for BFSI focused outsourcing services, and since then has become one of the largest providers of IT outsourcing services, including customer experience management, back-office, human resource and financial & administration services. The company has over 110 blue chip clients in the US, Europe, India and Middle East. According to news reports, the company did c.$449m in revenues and $83m in EBITDA in FY18. Intelenet currently has 55,000 employees across the globe.
Valuation:
Based on the news reports, Intelenet’s valuation of $1bn represents 2.2x Sales and 12.0x EBITDA. This is in line to market valuations in the Indian IT sector. Currently, mid cap IT companies (between $100m-$1bn in revenues) are trading at an average of 12.1x EBITDA and the BPO Services are trading at 11.8x EBITDA.
However, this is at a significant premium to recent large BPO transactions – The Essar Group sold Aegis to Capital Square Partners at 7.9x EBITDA, and consequently, Capital Square merged Aegis with StarTek at 5.7x EBITDA. Blackstone itself acquired Intelenet back from Serco Group in 2015 at 6.7x EBITDA.
The higher valuation, of course, can be attributed to better growth and margin profiles. Intelenet grew 10% y-o-y in FY 18 and improved EBITDA margins y-o-y from 17.4% to 18.5%. The company had less than 15% EBITDA margins when Blackstone acquired it from Serco in 2015.
At this valuation, we estimate Blackstone’s IRR at 37.5% over a period of 3 years.
Intelenet’s growth, to some extent, can be attributed to Blackstone leveraging its significant portfolio in the BFSI sector to help Intelenet expand its customer base. Over the last 3 years, the company has also focused on building capabilities in AI and RPA powered customer centric solutions, which has generated good traction with customers.
Transaction rational:
The transaction will be immediately accretive to Teleperformance with an impact of c.10% on its 2018 EPS, on a proforma basis.
Intelenet will be able to leverage Teleperformance’s global reach and significant cross selling opportunities are expected to emerge. Also, Intelenet’s employees would be able to get greater growth opportunities.
After witnessing slow growth for a number of years, the BPO / KPO segment has witnessed a turn-around in the last couple of years. A number of BPO companies have started focusing on digital technologies, RPA and analytics making them interesting for strategic as well as PE investors. Intelenet’s growth story is representative of the changing dynamics of the Indian BPO sector.
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