Big Blue gobbles up Daksh in landmark deal

Anshuman Daga / Bangalore

International Business Machines (IBM) has said that it would acquire Daksh, India’s third-largest back-office services firm, in the biggest acquisition yet in India’s booming $3.5 billion BPO sector.

Both companies declined to give financial details but industry sources estimated the buyout, the US giant’s first in India, at between $150 million to $200 million, making it one of the biggest foreign acquisitions in India in the past few years.

The deal, expected to be closed in May, will give the world’s largest computer maker access to privately held Daksh’s 6,000-strong employee base, who mainly offer call centre services to 13 clients, including Internet retailer Amazon.com

“This investment is indicative of our commitment to supporting our clients in this region and leveraging local capabilities,” Abraham Thomas, general manager at IBM India, said in a statement.

The purchase of Daksh, based in Gurgaon, strengthens IBM’s already significant muscle in India, where it employs 9,000 people in software, services and back-office work.

Daksh, which means ‘alert’ in Hindi, is set to become part of IBM Business Consulting. The four-year-old firm was estimated to have doubled revenue to about $60 million in the year to March 2004, and had been planning a public issue of shares before it agreed to be bought.

“This deal means that business process outsourcing (BPO) companies need to be part of a bigger outfit,” said Ravi Ramu, chief financial officer of mid-sized software exporter Mphasis BFL, which has a fast-growing back-office unit MsourcE.

“Stand-alone back-office firms require scale, financial stability, and being part of a bigger group also helps to attract clients,” said Ramu.

Nasscom has said that the Daksh acquisition “signifies the coming of age of India as the preferred destination for offshore services in terms of talent pool and infrastructure.”

Early mover in thriving industry

Daksh is an early mover in a sector which is thriving by tapping India’s English-speaking knowledge workers to provide services such as accounting and insurance claims processing to foreign customers looking for low-cost outsourcing.

The company’s rivals include MsourcE and Wipro Spectramind, India’s largest back-office firm which is part of Wipro, the country’s third-largest software exporter.

Infosys Technologies and Satyam Computer , the No 2 and No 4 software firms, have also jumped into the fray and have set up subsidiaries to offer back-office outsourcing.

Daksh had four co-founders, including its chief executive, Sanjeev Aggarwal.

Venture firms who invested $29 million in three rounds to acquire a majority in Daksh are expected to have done very well out of the IBM deal, which comes less than two years after Wipro acquired Spectramind for $102 million.

There have been other smaller acquisitions in the industry, in which competition for the best employees is intensifying with the entry of global giants, including American Express and third-party vendors like Accenture and Convergys.

Daksh’s first round saw Britain’s CDC Capital Partners invest $3 million in 2000, and Citigroup’s private equity arm put in $6 million a year later. General Atlantic Partners invested $21 million in 2002.

—Reuters