Firstsource plans to sell US-based MedAssist

Mumbai-based business process outsourcing firm Firstsource plans to sell US-based MedAssist, a health care business it acquired in 2007. Firstsource had paid $330 million for the acquisition.

Two sources close to the development say the MedAssist sale is on the agenda as the management has been thinking of getting cash to invest in other growth activities.

Firstsource had raised $275 million by issuing foreign currency convertible bonds (FCCBs) in 2008. When contacted, the company said, "Firstsource does not comment on market rumours."

This is not the first time the company will sell one of its acquired assets. Last year, Firstsource sold Pipal Research - a knowledge process outsourcing firm - to Crisil for $12.75 million.

A banker says the company wants to sell MedAssist along with its debt, though there is no clarity whether the deal would go through due to valuation issues.

Health care contributed 35.7 per cent to the firm's revenue in FY2011 and MedAssist accounted for the lion's share. When Firstsource acquired MedAssist, its top line was around $100 million, which has grown to around $150 million.

Firstsource entered the health care segment through acquisition. Its first acquisition was RevIT. This was followed by an acquisition of US-based BPM for $30 million in 2007 and then finally MedAssist, one of the biggest acquisitions for the company.

"The idea behind the MedAssist acquisition was to merge the payer (insurance) and the provider (comprised of hospitals, physicians, etc)

side of the health care sector. But that never happened. Besides, the valuation was on the higher side. The recession added to the problems," says a senior industry executive.

The FCCBs will mature in 2012. Bondholders can either convert their bonds to equity or redeem these. The company had given a conversion price of Rs 92.29, which would be redeemed on the maturity date at a yield-to-maturity of 6.75 per cent per annum.

However, the firm's share price has been languishing at rates much lower than this. The current outstanding FCCBs are $22.4 million. The FCCB burden has impacted the firm's stock price. The current price, at Rs 11.82 per share is much less than its listing price in 2007.

Many think the MedAssist sale will also help ICICI Bank to sell off its 19.86 per cent stake in the company. ICICI Bank has not been able to sell as the valuation of the firm is low.

In the recent past, mid-cap information technology services firm 3i Infotech had done something similar. The company earlier this year sold its billing and payments unit, consisting of Regulus Group and J&B Software, for $137 million (Rs 600 crore).

Regulus was a profit-making and cash-generating firm for 3i Infotech. While the company agrees in the immediate future it will have an impact on the top line, it will allow greater focus on the IT and services segment.