INTELENET MAKES A RECORD OF $200M MANAGEMENT BUYOUT DEAL

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IN the largest management buyout (MBO) in the country, the management team of BPO firm Intelenet, backed by PE firm Blackstone, has bought out the existing promoters, Barclays Bank Plc and HDFC. Under the terms of the deal, Blackstone will hold 80% in the firm and employees, including the current management team, will hold 20%.

Sources pegged the value of the deal in the region of $200 million.No official confirmation was available on the deal value, because Blackstone is in the silent period. Around 300-400 employees in the senior management of Intelenet will become shareholders in the firm once the transaction is completed.
 
As per Sebi regulations, the change in ownership will also trigger an open offer in Intelenet subsidiary, Sparsh, the listed entity in the domestic BPO business. The shares of Sparsh were up 5% to Rs 208 on the BSE. Its share price has almost doubled from Rs 105 in the span of a little over two months. KPMG was the advisor to the Intelenet management on the deal.

“We were clear that the investor should be a big brand with deep pockets. We also wanted player who could introduce us to other portfolio companies that could give us business. Blackstone was a good fit,” Intelenet CEO Susir Kumar, who led the MBO along with his core team, said. Around 12 people from the core management of Intelenet were closely involved in the process and Blackstone’s record of being a long-term investor with an average investment period of five years, in addition to being a good cultural fit for Intelenet also swung the deal in its favour, Mr. Kumar added.

This is Blackstone’s first BPO investment in India. One of the largest PE firms, Black stone’s portfolio of 50 investee companies have revenues collectively amounting to about $90 billion. Blackstone’s other India investments are in Emcure Pharmaceuticals and media firm Ushodaya Enterprises.

The deal values Intelenet at over two times its FY07 sales of around Rs 380 crore, compared with the over 3x sales valuation of EXL (March 07 annualised and WNS. In terms of the employees, the 6-year-old firm is the third largest third party BPO firm in the country with around 17,000 employees.

Interestingly, Barclays, which will now exit firm as a shareholder, will continue as a ‘long term’ client for the businesses currently outsources to Intelenet. It will also set up its own captive in the Delhi with the help of the Intelenet management team. HDFC, which was one of the original promoters, seems to have taken strategic decision to exit the firm, unlike ICICI which took its BPO firm — First source— to IPO this year. The value of HDFC stake has increased nearly three times since 2004. In 2004, Tata Consultancy Services’ 50% stake in Intelenet got $35 million.

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