General Electric has agreed to sell its Indian outsourcing company to two US private-equity firms. General Atlantic Partners and Oak Hill Capital Partners will pay about $500 million in cash for a 60% stake in GE Capital International Services (Gecis), valuing the company at around $800 million. The deal is expected to go through in the next six months.
Analysts reckon that GE has timed the sale well to hit the business process outsourcing market at its peak. According to Nasscom, the industry body in India, growth hit 46% in 2003 on revenues of $3.6 billion. A slightly lower growth rate is expected this year and few expect the super-normal rates to continue for long. "We're through the period of highest growth now," says one analyst. "The rates are only going to go down from here."
Gecis is one of the world's biggest players in this sector. It was set up in Guragon, near Delhi, in 1997 to support GE's existing businesses by providing outsourced services in finance and accounting, supply-chain management, customer-service support, software development, data modeling and analytics.
But GE is said to have been keen to sell Gecis as part of an effort to dispose of non-core assets - today the company is no longer just a captive outfit but a business in its own right that employs more than 17,000 people around the world, including operations in China, Hungary, India and Mexico.
GE is still the largest client by far, and will remain so, but the sale will unleash a new entrepreneurial spirit, according to Pramod Bhasin, who stays on as president and chief executive officer. "This transaction allows us to offer our quality business process services to an expanding roster of leading companies worldwide," says Bhasin.
It will also net GE a tidy profit. Analysts say the deal values Gecis at between 1.5 and 2-times its 2003 revenue, which is comparable to IBM's acquisition in April of Daksh Services, India's third-largest BPO player, for $145 million. Smaller deals have tended to focus on slightly lower valuations.
Although the sale clearly represents a big disposal by GE it is not an all-out exit. The company still holds the remaining 40%. The new controlling stakeholders - the two companies hold an equal share - say there are no plans for an initial public offer in the foreseeable future. "The market for process outsourcing continues to experience tremendous growth," says Mark Dzialga, a partner with General Atlantic. "As experienced investors in information technology and technology-enabled services we look forward to working with Gecis's outstanding management and contributing to their continued success."