Companies that have opted to build wholly
owned shared-service centers instead of outsourcing
back-office functions may be sitting on gold mines.
Eager to gain scale in a
consolidating industry, service
providers are searching for
sellers. In September, Capgemini bought 51 percent of Unilever’s Indian
captive. Earlier this year, the Worldwide Securities Services division
of JPMorgan Chase snapped up the back-office operations of the U.S.
hedge fund Paloma Partners Management Co. in order to build its
own hedge fund services business. Sensing an opportunity for profit,
private-equity firms and hedge funds are also on the prowl.
Many companies have a strong incentive to sell, says Chaz
Foster of outsourcing advisory firm TPI. As service providers in China,
India, and Indonesia expand, workers are increasingly less interested in
sticking with the smaller captives. “Experienced employees want to go
somewhere bigger because there’s more opportunity,” he explains.
Companies typically retain a stake in the operation after selling,
which could mean extra profit if the commercial venture makes
money. For example, GE still owns 40 percent of the successful
shared-services operation (Genpact) that it sold for $500 million to
two private-equity firms. Sellers typically hire the new owners to
continue to provide services to them, often at a reduced cost.
Clearly, a sale isn’t always appropriate, particularly if there are
security worries or if the work involved differentiates a company in the
market. (For these reasons, many financial-services firms are establishing
more, not fewer, captives.) But John Halvey, a partner with Milbank
Tweed, foresees many more such deals in the coming years. “There are 400 captive entities in India — at least 100 will get spun out,”
he predicts. “There’s economic value in these operations, and at the
end of the day, someone will want to unlock it.”