Bain-backed Bellsystem24 dials up Asia expansion

Japanese call centre operator Bellsystem24 is expanding in Asia now that it has completed a $411 million IPO, executives at the firm told FinanceAsia.

Japanese telemarketer Bellsystem24 is speeding up its expansion in Asia after making its market debut in Tokyo on Friday, executives at the firm told FinanceAsia

Bellsystem24 has signed a memorandum of understanding with a large company in Indonesia, is about to sign a joint venture with a large satellite content company in Thailand, and is finishing up an acquisition in Vietnam, they said.

Bellsystem24, the largest call centre operator in Japan by revenues, will base call centres in Vietnam to compete with Philippines-based rivals for English-speaking clients.

“Between labour and facilities, I’ve got about a 20% price advantage in Vietnam over the Philippines,” Bellsystem24 chairman David Garner told FinanceAsia. Even at that discount, he projects the firm’s business in Vietnam will command a 38% Ebitda margin. “Our return on invested capital in Vietnam will be just exceptional.”   

There were one million people in the Philippines working in English-language call centres as of January, he said.

The expansion will be partly funded by new shares sold during the firm’s $411 million initial public offering pre-greenshoe, alongside stock sold by Bain Capital and Japanese trading house Itochu. The company issued 3,102,900 shares and the existing shareholders sold 29,400,000.

Garner expects revenues from overseas to be significant in three years time, with three-times higher margins than on its domestic Japanese revenues.

The shift overseas comes as Japan falls back into a technical recession after its GDP in the third quarter shrank by 0.8% year-on-year.

“One of the things that resonated with investors was that we were not going to just focus on Japan but [are] going to take a more pan-Asian view and expand into China, Indonesia, and Vietnam,” Garner said.

The firm's IPO priced at ¥1,555 a share, in the lower half of the marketing range of ¥1,500 to ¥1,720. The stock fell during its first day of trading.

Some investors were focused on the growth trajectory of the company while others were concerned about the amount of debt on Bellsystem24’s balance sheet, he said.

The firm is leveraged to the tune of about five times earnings. The debt is mostly a result of the leveraged buyout by Boston-headquartered Bain Capital back in December 2009 and the subsequent purchase of a 49.9% stake by Itochu last year.

Investors also voiced their concerns over a likely drop in operating earnings in 2016. The firm expects its adjusted operating income to drop to ¥11.1 billion in fiscal year 2016 from ¥19.8 billion in fiscal year 2015, according to market sources from the IPO road show. 

That is partly to do with the renegotiation of Bellsystem24's contract with Softbank.

Bellsystem24 bought BB Call from Softbank in 2004 with the exclusive rights to provide Softbank BB and Japan Telecom with call centre services at above-market rates, almost as a form of financing for the acquisition. Although the relationship remains a profitable one for Bellsystem24, the contract was renewed last year back in line with market rates and represents a little less than 15% of the company’s revenues.

The margins and core growth rates of Bellsystem24 versus competitors such as Moshi Moshi Hotline and Transcosmos nonetheless continue to impress large investors.

“Our core business is growing at about 8.5% right now,” Garner said, adding that his firm's margins were twice those of his competitors.

He added that whilst marketing the IPO one large investor familiar with Asia's call centre industry described Bellsystem24 as "like a cat amongst the pigeons.”

New business, new metrics 

Trading house Itochu, which uses more than 5,000 call centres, has pledged to gradually shift its call centre business to Bellsystem24 over three years.

“That’s a massive amount of revenue and profitability that will be coming into the company in domestic Japan,” said Garner, adding that the transference is on track. “We’ve already got seven or eight nice contracts with Itochu-related companies like Asurion and FamilyMart.”

Bellsystem24 is also selling cloud-based telephony networks to large corporations in Japan in partnership with Itochu-affiliated systems-integration firm CTC. “This is a nice business for us which should grow significantly with high margin,” Garner said.  

Bain acquired Bellsystem24 from Citigroup in 2009 for ¥100 billion (equivalent to $1.1 billion at the time) and around five to six times the company’s Ebitda.

The private equity firm quickly overhauled the efficiency of the telephone operators within the call centres – introducing US-style management metrics that raised the amount of time agents spent answering phone calls. 

Bellsystem24 has tapped into changing attitudes within Japan as large corporations look for ways to provide services at a lower cost, even as opportunities to increase revenue in a mature domestic market are limited. Outsourcing is increasingly popular.

“It’s been a major transformation,” said David Gross-Loh, a man aging director at Bain Capital in an interview with FinanceAsia.

Bain brought in Garner, formerly of Nashville-headquartered Sitel and Tampa, FL-based Sykes Enterprises, to enhance the efficiency of the operators.

In Japan, generally, operator efficiency was very low versus global standards partly because customers paid according to the number of people employed rather than by number of calls answered.

Established in 1982, Bellsystem24 has 26,000 customer service operators across Japan, up from 20,000 operators last year. 

Going forward, Bain retains a 14.5% stake in the company, assuming no over-allotment, and Itochu has 41.1%.

Bain was able to recapitalis e in 2011 and took out a dividend. At that point Bellsystem24’s Ebitda had already risen by 215%.

SMBC Nikko and Mitsubishi UFJ Morgan Stanley Securities advised on the IPO.

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