Citigroup is putting its captive business process outsourcing (BPO) arm on the block. The bank is said to have appointed a merchant banker in US for the proposed sale. The captive arm, which was last year renamed as Citigroup Global Services (CGS), was earlier listed on the Indian bourses as e-Serve International.
In response to an emailed questionnaire to company officials, a Citigroup spokesperson in India replied that: “We decline to comment on market rumours.” However, a highly placed source in Citigroup’s Indian operation, who did not wish to named, said a decision has been taken in the global headquarters to sell the BPO business, which was among the earliest captive businesses to be set up in India.
If CGS goes on sale, it will be the second large BPO unit to be on sale from India in recent times. A few days ago, India’s largest BPO vendor Genpact made an application to list $600 million worth of its shares on the New York Stock Exchange. Analysts have since valued Genpact between $5-6 billion, on sales of $613 million last year. On a similar valuation, CGS may well be worth anything between $1-1.5 billion.
An investment banker working with Kotak group said that there are both local and global companies and investors who are interested in buying into Indian BPOs. Indian BPO companies are still growing rapidly and have begun to acquire scale only recently. Private equity (PE) investors also believe that there is a lot of room to make money by investing in BPOs.
PE funds Oakhill Capital and General Atlantic Partners together bought 62.63% in Genpact from General Electric in 2005 for nearly $500 million. At current valuations, they stand to make ten times their original investment in two years. Says the Kotak banker: “In the years to come, the BPO companies will become as big as IT companies. In a sense, it is still the beginning of deal making in this space.”
According to industry sources, Citigroup is putting its BPO on the block after finding it difficult to keep its costs down, especially after recruiting thousands of employees on the company’s rolls. CGS spend a huge amount of money in advertising that including hoardings, which competitors like Intellinet reckon goes against the industry’s practice of keeping costs low.
Captive BPO’s often tend to specialise in only one domain  in case of CGS, finance and banking, because that is what their parent companies want them to do. In turn, it reduces the options their business managers have to source high end contracts. Source: IndiaTimes
