General Electric Co, the world's top conglomerate, said on Monday it had sold a majority of its pioneering Indian back-office unit to exit a non-core business and help the fast-growing unit gain new customers. The sale of 60 percent of GE Capital International Services (GECIS) for about $500 million is the biggest deal so far in India's consolidating $3.6 billion back-office industry.
That industry is growing at 50 percent a year, but GE felt the sale to global private equity investors General Atlantic Partners and Oak Hill Capital Partners would free up some capital for investment in other areas.
"We saw the opportunity for GECIS to grow, (but) that did not fit with our strategy," said Scott Bayman, president of GE India.
GECIS serves mostly GE subsidiaries. By moving out of the GE fold, it will broaden its potential clientele.
"This transaction allows us to offer our quality business process services to an expanding roster of leading companies world-wide," GECIS President Pramod Bhasin said.
GE will continue to outsource services to GECIS under a multi-year deal, and its business with the firm was expected to grow by 10 to 15 percent a year, Bhasin said.
GECIS is often cited as the biggest outsourcing success story in India, which has become a magnet for back-office units of global firms keen on reducing overhead costs by tapping the country's huge, low-cost workforce.
GECIS, the largest back-office services operation in India, is valued at around $800 million after the deal. It began operations in 1997 and is currently profitable, and expects to post revenue of $420 million in 2004 and $513 million in 2005.
The deal, subject to government approval, is likely to be wrapped up in six months.
GECIS offers services such as finance, accounting, insurance claims processing, analytics, customer training and IT services.
GECIS has 17,000 employees, including about 12,000 people in India. It has other operations in China, Hungary and Mexico.
"We have an enormously compelling economic proposition to offer," said Bhasin, a 25-year GE veteran. "We know we can grow by 6,000 to 8,000 employees each year, as we have done that in the past."
Bhasin said the new owners had no plans yet to get GECIS listed on the stock markets. The firm was generating enough cash to fund its growth plans, which could include setting up new units in Romania and Tunisia, as well as other Indian cities.
GE was one of the first multinationals to outsource back-office work such as data processing and call centre services to India on a large scale. GECIS serves clients in 19 languages and provides services to 30 different GE businesses in the United States, Europe, Japan and Australia.
This deal is just the latest in a series of transactions that have taken place in the nascent industry this year.
Citigroup Inc said in August it would spend $112 million to take majority control of e-Serve International Ltd and International Business Machines Corp bought Daksh e-services in April in a deal estimated to be worth between $150 million and $200 million.