Genpact-Headstrong merger: End of pure-play BPOs?

Outsourcing giant Genpact said it will acquire consulting and IT services firm Headstrong Corporation for a cash consideration of $ 550 million. Does the merger mean end of pure-play Indian BPO companies?

In a blog post, Saurabh Gupta, vice president of Everest Group mulls this and how the deal will help Genpact. Genpact has scaled ITO capabilities, but more than 85% of its $1.2 billion-plus revenues still driven by BPO.

Moreover, Genpact's ITO revenues have been flat over the last few years. So I think it is only fair to call them a pure-play BPO, writes Gupta. With the acquisition of Headstrong, the split between BPO and ITO for Genpact will be closer to 70:30.

According to him, Genpact's topline growth has fallen from 25-35% in 2007-2008 to 7.5-12.5% in 2009-2010. Not bad considering a growing denominator; stable to increasing margins; and a bad economy. But growth is slowing, and I believe this acquisition will be important for Genpact to ensure scalability in the medium to long term. Here's why tells Gupta:

-- BPO-only services have a strong value proposition for the first 3-5 years of an engagement driven by arbitrage and operational efficiencies and effectiveness – and Genpact has been successful in riding this wave. However, it is often difficult to drive the next wave of value from pure BPO and often this requires integrated IT-BPO capabilities.

With a majority of Genpact's BPO client base entering this end-of-term phase, Headstrong's capabilities will allow Genpact to present an integrated value proposition.

Genpact's proprietary add-on tools for BPO (remember the acquisitions of Creditek, Avolent and Symphony) and process capabilities (from Six Sigma and Lean expertise to SEP) with Headstrong's IT capabilities will be a strong combination.

-- This acquisition will also help Genpact ride the potentially disruptive trends in the areas of cloud, SaaS and BPaaS. Their partnership with NetSuite last year was another step in this direction.

Headstrong's acquisition is also interesting from an industry expertise perspective. BPO is fast morphing from being a horizontal service to a more industry-specific offering.

Even in traditional BPO services like F&A, more and more industry-flavors are being included, be it around Dell revenue cycle management for healthcare providers or meter-to-cash for utilities.

Within financial services (one of the largest recipients of global services), our research shows that capital markets BPO is the fastest-growing segment. This is where most of Headstrong's capabilities reside. Healthcare (another strong area for Headstrong) is another industry poised for strong global services growth in the near term.

Source: http://timesofindia.indiatimes.com/tech/news/outsourcing/Genpact-He...