Thursday, August 02, 2007

Taking BPO Public

When is the right time for a BPO to go Public?

The question is troubling many Indian BPOs wanting to get listed. The industry seems divided. Suggested BPO critical mass range between $100-250 million in revenues to get listed in NASDAQ and a modest $25m is enough to get listed in India's BSE.

Currently the BPO industry is operating at 10-12 per cent EBITDA margins and command a P/E multiple of 18-25. KPOs have higher EBITDA margins of about 15 per cent. Many BPOs are wary of getting listed on BSE as the industry knowledge is poor.

A BPO sees some merit in going public. Besides the fact that investors get to monetize their stake or having cash reserves to buyout other BPO assets (like in the case of Genpact), it will also have a better image since it will be subjected to frequent compliance / process audits and its affairs are open to shareholder scrutiny.

Unlike an IT company, setting up a BPO is capital intensive. Experts say 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. While private equity is always an option, an IPO can offer 10 times the valuation.
Hamlet's soliloqy comes to mind... To be, or not to be (public)...!

No comments: