Serco to acquire Intelenet for Rs 2,772 crore

Services and consulting firm Serco on Tuesday signed an agreement to acquire Indian BPO company Intelenet for up to GBP 385 million (Rs 2,772 crore).

Under the share purchase agreement, the total acquisition cost, including assumption of existing debt, is up to GBP 385 million (Rs 2,772 crore).

This includes contingent cash payments of up to GBP 50 million (Rs 360 crore) through to December, 2013.

"The acquisition of Intelenet supports our ambitions as a leading global service company. The international BPO market is growing quickly as companies seek out new ways to improve their service and reduce costs," Chris Hyman, the Chief Executive of Serco, said in a statement.

Intelenet was founded in 2001 as a joint venture between TCS (Tata Consultancy Services) and HDFC (Housing Development Finance Corporation).

In 2007, a management buy-out was completed, resulting in the business being majority owned by Blackstone Group, together with Barclays, HDFC and Intelenet's management team.

For the year to March 31, 2011, Intelenet's revenue was approximately GBP 170 million (Rs 1,224 crore) and adjusted operating profit, before the amortisation of intangibles arising on acquisitions, and acquisition transaction costs stood at GBP 19 million (Rs 136.8 crore).

Expectations are for Intelenet to continue achieving organic annual revenue growth of 10 to 15 per cent and to maintain its adjusted operating profit margin, before net cost synergies, at around 12 per cent, the statement said.

The acquisition is expected to be accretive to earnings in the first full year, with returns meeting Serco's cost of capital in the third full year of ownership, the statement added. "Becoming part of Serco will propel us to our next phase of growth by helping us to address a wider market and to provide more end-to-end solutions," Intelenet Global Services Chief Executive Susir Kumar said.

"We are grateful for Blackstone, Barclays and HDFC for their tremendous support of the company and we are pleased to be continuing the strong relationship with them as our clients," Kumar added. The acquisition will be fully funded from Serco's debt facilities. The expected funding cost of the acquisition will be around 5 per cent.

Serco expects that the transaction costs charged in the first year will be approximately GBP 3 million (Rs 21.6 crore) and anticipates that a similar amount of integration costs will also be incurred, spread over the first and second year.

Following the initial integration programme, net cost synergies are expected to grow to approximately $5 million per year, driven principally by the integration of Intelenet with its existing India-based BPO operations, Serco said.

The company has converted all the monetary figures assuming an exchange rate of Rs 72 per pound. The acquisition is subject to regulatory approval, which is expected in the coming months.