BPOs should get basics right before listing
Some say a BPO should at least achieve a critical mass of $200-250 million in revenues, others believe revenues of $100 million are good enough to get listed.
By Harsimran Singh, TNN |
NEW DELHI: When is the right time for a BPO to go for an IPO? The question is troubling many Indian BPOs who want to get listed. And the industry seems divided. While some say a BPO should at least achieve a critical mass of $200-250 million in revenues, others believe revenues of $100 million are good enough to get listed. On the other hand, on Thursday, Gurgaon-headquartered Genpact expects to raise $600 million in an NYSE listing that will value the company at about $3.1 billion. Genpact had revenues of about $613 million in 2006.
“To go to Nasdaq or NYSE, a valuation of at least $200-250 million is required to have fund managers excited. Otherwise, your IPO may not even be noticed,” says Raju Venkatraman, JMD & COO of Firstsource, which is listed on BSE.
Some feel otherwise. For instance, Zenta BPO and Copal Partners are planning to go for a Nasdaq/NYSE listing with a lower valuation. The $25 million KPO Copal Partners plans for Nasdaq listing next year. “We may look to dilute 20% of our equity” Joel Perlman of Copal Partners told ET.
Zenta BPO also plans a listing next year. “We have achieved a critical mass of $100 million in revenues. We plan to go for an IPO next year,” Zenta Country Manager Jaswinder Ghumman said. According to sources, Hexaware, MphasiS, 24/7 Customer are also planning to list overseas very soon.
Integreon plans a listing after two years, says Integreon COO Prashant Chawla. “While $200 million is a good enough size to list on Nasdaq, about $25 million will do for BSE listing,” Mr Chawla adds. Currently the BPO industry is operating at 10-12% EBITDA margins and command a P/E multiple of 18-25. KPOs have higher EBITDA margins of about 15%.
Many BPOs are, however, wary of getting listed on BSE as the awareness amongst retail investors about BPO industry is still low compared to that of IT companies.
Says WNS CEO Neeraj Bhargava: “We started operating like a listed company at least 5-6 months before our issue. We got our financial discipline in place and got ourselves US GAAP, Sarbanes Oxley compliant.”
A BPO goes in for an IPO for three reasons, the primary being the intent of its investors to encash their stake, like in the case of Genpact. The second reason is when a BPO is intent on an aggressive buyout strategy but doesn’t have enough cash. Third, an international IPO obviously makes prospective clients aware of the BPO. A good IPO builds a good brand image and attracts subsequent business. A BPO should have its basics in place before going to the market, say experts.
Unlike an IT company, setting up a BPO is capital intensive. “It takes about $6,000 per seat to set up a BPO while a software company can be set up at an investment of about $2,300 per seat. Thus unless you have over 2,000 employees and are profitable, one should not even think of an IPO,” says an expert.
While options to raise money from private equity is always an option, an IPO can offer 10 times the valuation. Life after an IPO is not any easier, though.
“You have to choose your customers carefully at the right price and assess their sustainability. And post-IPO, a company gets enough cash for buyouts but it should not squander it away. Instead, it should be put to enough organic expansion,” says WNS’ Bhargava.
WNS has acquired three companies — Marketix, Flovate and PRG — post its IPO. EXL which listed on Nasdaq last year has cash assets of over $85 million and is planning buyouts in the range of $50-75 million. In contrast, Genpact is reported to be scouting for Citi BPO, valued at over $700 million.
“To go to Nasdaq or NYSE, a valuation of at least $200-250 million is required to have fund managers excited. Otherwise, your IPO may not even be noticed,” says Raju Venkatraman, JMD & COO of Firstsource, which is listed on BSE.
Some feel otherwise. For instance, Zenta BPO and Copal Partners are planning to go for a Nasdaq/NYSE listing with a lower valuation. The $25 million KPO Copal Partners plans for Nasdaq listing next year. “We may look to dilute 20% of our equity” Joel Perlman of Copal Partners told ET.
Zenta BPO also plans a listing next year. “We have achieved a critical mass of $100 million in revenues. We plan to go for an IPO next year,” Zenta Country Manager Jaswinder Ghumman said. According to sources, Hexaware, MphasiS, 24/7 Customer are also planning to list overseas very soon.
Integreon plans a listing after two years, says Integreon COO Prashant Chawla. “While $200 million is a good enough size to list on Nasdaq, about $25 million will do for BSE listing,” Mr Chawla adds. Currently the BPO industry is operating at 10-12% EBITDA margins and command a P/E multiple of 18-25. KPOs have higher EBITDA margins of about 15%.
Many BPOs are, however, wary of getting listed on BSE as the awareness amongst retail investors about BPO industry is still low compared to that of IT companies.
ADVERTISEMENT
Some like WNS say that unless you have a good business model and are assured of constant stream of revenues for the next 5-6 quarters, you should not even think of a listing. Says WNS CEO Neeraj Bhargava: “We started operating like a listed company at least 5-6 months before our issue. We got our financial discipline in place and got ourselves US GAAP, Sarbanes Oxley compliant.”
A BPO goes in for an IPO for three reasons, the primary being the intent of its investors to encash their stake, like in the case of Genpact. The second reason is when a BPO is intent on an aggressive buyout strategy but doesn’t have enough cash. Third, an international IPO obviously makes prospective clients aware of the BPO. A good IPO builds a good brand image and attracts subsequent business. A BPO should have its basics in place before going to the market, say experts.
Unlike an IT company, setting up a BPO is capital intensive. “It takes about $6,000 per seat to set up a BPO while a software company can be set up at an investment of about $2,300 per seat. Thus unless you have over 2,000 employees and are profitable, one should not even think of an IPO,” says an expert.
ADVERTISEMENT
Generally a float of about 20% is looked at with a 2-3% of greenshoe option. Greenshoe allows underwriters the right to sell additional shares if demand for the shares is in excess of the original amount offered. While options to raise money from private equity is always an option, an IPO can offer 10 times the valuation. Life after an IPO is not any easier, though.
“You have to choose your customers carefully at the right price and assess their sustainability. And post-IPO, a company gets enough cash for buyouts but it should not squander it away. Instead, it should be put to enough organic expansion,” says WNS’ Bhargava.
ADVERTISEMENT
WNS has acquired three companies — Marketix, Flovate and PRG — post its IPO. EXL which listed on Nasdaq last year has cash assets of over $85 million and is planning buyouts in the range of $50-75 million. In contrast, Genpact is reported to be scouting for Citi BPO, valued at over $700 million.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
