BPO firm buyout 'forced' by US recession

BPO firm buyout 'forced' by US recession

Summary: Analyst says merger between PeopleSupport and India's Aegis is likely the result of cost-cutting measures and the need to streamline operations.

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PHILIPPINES--This week's merger between business process outsourcing (BPO) firm PeopleSupport, and India's Aegis BPO, was likely a spillover effect of the U.S. economic downturn, says an industry analyst.

PeopleSupport said in a statement Tuesday that Aegis, through its subsidiary Essar Services (Mauritius), has bought the company for US$250 million. Although headquartered in the United States, the majority of PeopleSupport's employees--some 7,000 workers--are based in the Philippines. Before establishing a site in Costa Rica to serve its Spanish-speaking clients, the company maintained its entire workforce in the Asian country.

According to Manila-based analyst, Benedict Ferrer, PeopleSupport's decision to "merge" with Aegis BPO could be the consequence of a "domino effect" afflicting consumers and corporation, as a result of the ongoing U.S. recession.

A research manager at XMG, Ferrer said in an e-mail interview: "Many multinational companies are forced to streamline operations, cut costs and source cost-effective measures.

"Companies will rely heavily on expansion program or corporate buyout, to meet the demands of the market," he explained. The analyst noted that XMG expects similar mergers and acquisitions not only in the Philippines, but also globally as BPO companies realize the potential of such transactions.

Philippines still significant
To underscore the importance the Philippines in its global operations, PeopleSupport's local head, Rainerio "Bong" Borja, was also vice president for the company's global strategic programs. Prior to Aegis BPO's entry, PeopleSupport was led by its founder, American Lance Rosenzweig.

In a phone interview with ZDNet Asia, Borja said he will continue to serve as head of local operations after the acquisition is formalized. Expected to be finalized in the fourth quarter of this year, the acquisition deal is subject to various conditions including approvals from PeopleSupport stockholders and regulatory agencies.

Borja, who sits as board director of the Contact Center Association of the Philippines, said he will retain an executive role at Aegis BPO but declined to provide further details about the nature of the job.

The acquisition came as a surprise because Nasdaq-listed PeopleSupport had earlier rebuffed an unsolicited merger proposal by Manila-based technology conglomerate IP Ventures Group (IPVG) and AO Capital Partners, in an all-cash transaction at US$17 per share.

PeopleSupport said it had concerns about the ability of IPVG and AO Capital to consummate the proposed transaction. Rosenzweig said in a statement that the company had requested customary information, but did not receive any.

The deal with Aegis BPO involves an estimated premium of 29 percent over PeopleSupport's closing share price on Aug. 1, the last trading day prior to the announcement, and some 42 percent above the average trading price of the company's shares during the previous 30 days.

After the merger is completed, the call center will carry the name Aegis PeopleSupport.

According to Borja, the acquisition will serve as Aegis' entry point to the Philippines.

Indian call centers including Carlyle Group-backed AllSecTech, Firstsource Solutions, and Genpact Holdings, have gradually increased their presence in the country.

Borja said: "Both companies will complement [each other with] their respective offerings. PeopleSupport will also give Aegis the presence here in the Philippines, while Aegis will give PeopleSupport the presence in the Unite States."

For the time being, the Filipino executive said, PeopleSupport's local management team will continue to chart the company's expansion strategy. Aside from two facilities in Manila and Cebu City in the south, the call center operator recently opened a location in Baguio City in the north.

"The Baguio facility currently has 500 seats, but we plan to add another 700," Borja said, adding that the company plans to fill up the site's 2,000-seat capacity.

Aegis BPO has annual revenues of over US$320 million, and has about 4,000 employees in the United States and over 25,000 employees in various offshore locations.

Melvin G. Calimag is a freelance IT writer based in the Philippines.

Topics: IT Employment, CXO, Outsourcing

Melvin G. Calimag

About Melvin G. Calimag

Melvin G. Calimag is currently the executive editor of an IT news website in the Philippines. Melvin has been covering the local IT beat for the last 13 years. He is currently a board member at the IT Journalists Association of the Philippines (CyberPress), and also serves as a charter member with the Philippine Science Journalists Association.

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