Acquisition target for a PE investor in the knowledge process outsourcing (KPO) sector

In search of a sunrise segment in the KPO sector

 

The IT and BPO services industry grew dramatically in the nineties, to emerge as one of the bright spots in the Indian economy. As the traditional segments matured post 2000, newer markets evolved – in legal services, market research, analytics, engineering services, etc.

 

These services, broadly clubbed under knowledge process outsourcing (KPO), were driving the shift from commoditized to high-value services. The distance between outsourceable and non-outsourceable workflows was narrowing.

 

A private equity investor, with a focus on companies in the manufacturing sector, wanted to diversify into the emerging, high-growth niche services sector. They wanted to invest in a KPO firm – a firm that would give them a strong market position ensuring sustainable growth with profits in the long term.

 

However, the challenge was the huge number of companies, and multiple service segments catering to entirely different markets. Choosing interesting segments and companies within them was a huge task.

 

Narrowing down to the right-fit company

 

ValueNotes brought to the table close to a decade’s experience of researching the KPO sector in India. From an internal database of over 500 companies, we were able to provide analysis on the attractiveness of each segment, as well as short-list prospects quickly.

 

After a rigorous process that involved speaking to the management of selected companies to better understand their business models, team and client base – and the fit with our client; we further shortlisted a set of companies the client could speak to. Companies that were not interested in raising capital were eliminated, as were those which didn’t satisfy our client’s criteria.

 

Early bird catches the worm

 

Thanks to our research, the client was able to identify several investment opportunities early – before the sector became popular. This allowed them greater choice at lower valuations, than were available subsequently.

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