IBM Acquires Indian Outsource Provider

First in a wave of consolidations in the business process outsourcing sector?
Stephen TaubApril 8, 2004

If you can’t beat ’em, buy ’em.

That’s one take on the policy behind International Business Machines Corp.’s decision to acquire Daksh, India’s third-largest provider of back-office services, for between $150 million and $200 million, according to Reuters.

IBM’s acquisition is the largest deal of its kind in India’s technology services industry, reported the Financial Times.

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Said Abraham Thomas, general manager of IBM India, in a statement, “This investment is indicative of our commitment to supporting our clients in this region and leveraging local capabilities,” according to Reuters.

IBM now employs 9,000 people in India in software, services. and back-office work. The proposed acquisition would add Daksh’s 6,000 employees, who mainly provide call-center services to 13 clients, including, according to Reuters.

“This deal means that business process outsourcing (BPO) companies need to be part of a bigger outfit,” said Ravi Ramu, chief financial officer of software exporter Mphasis BFL, according to the wire service. Indeed, a number of experts believe this deal will touch off a wave of mergers in India’s booming outsourcing industry.

“This shows that American companies and the world at large [are] serious about outsourcing and India,” reported the FT, quoting a representative of one of the private equity funds exiting from Daksh following IBM’s acquisition.

India’s BPO business has been growing at a 55 percent clip for the past three years, and total revenues for the fiscal year that ended in March probably topped $3.6 billion, added the FT.

Less than two weeks ago, IBM was awarded a $750 million, 10-year outsourcing contract from Bharti Tele-Ventures, an Indian telecommunications group.

“These [two deals] will frighten competitors because they show IBM’s commitment to India as a market [via the Bharti deal] and a place from which to deliver services [via IBM’s captive centers and Daksh],” said Supratim Basu, technology analyst at ICICI Securities in Mumbai, in the FT report.