United Utilities, Vertex, Outsourcing, Equity, Firms
[HROA Commentary] United Utilities sells off outsourcing subsidiary Vertex to private equity firms
-
|
- Print |
- Email Page
For HROA Commentary, please see below.
A consortium of three U.S.-based private equity firms, Oak Hill Capital Partners, GenNx360 Capital Partners and Knox Lawrence International, announced that they have reached a definitive agreement to acquire Vertex Data Science Limited (Vertex), a business process outsourcing subsidiary, from United Utilities PLC, based in the United Kingdom.
The acquiring company is VTX Holdings Limited (VTX), a newly formed entity. Total consideration for the sale is 217.5 million pounds Sterling, comprising cash, the repayment of intra-group debt and the assumption of certain liabilities of Vertex.
"Vertex has strong partnerships with leading customers built on a commitment to high quality service, distinctive expertise and the intelligent application of technology. We look forward to working with our partners to build on that success," said Doug Kaden, a Principal at Oak Hill Capital Partners.
Completion of the sale is expected by the end of March 2007, subject to satisfying appropriate regulatory requirements.
This is the fourth BPO buyout involving the sale of a large captive unit in the last five years.
Earlier, GE, British Airways and Conseco have taken similar routes to sell their captive offshore operations. Vertex is the first major onshore service provider (granted, with a strong offshore presence) to take this route.
HROA Commentary:
Stan Lepeak, head of research at EquaTerra, sees this move as very positive for a service provider like Vertex. Captive outsourcing service providers of legacy end-user organizations, particularly in a regulated industry like utilities, face many challenges and restrictions including:
- Specific regulatory restrictions on the type of work they can provide
- Competitive issues relative to the parent company as the industry deregulates
- A lack of attention/understanding/investment by the parent that is more focused on things other than outsourcing (like, for example, paying large dividends to utility shareholders).
United's CEO stated, “We believe this transaction serves the best interests of our shareholders, allowing the group to concentrate on its core skills. We aim to be a world class operator of utility infrastructure.” According to Robert Morgan, Chairman of Morgan Chambers, this marks the end of numerous forays to acquire unregulated income streams by many utility companies to secure new and higher profit generating entities during the early to mid 1990’s – most of which cost their parent company dearly.
By separating from its utility parent, Vertex has the potential to become more nimble and focused, and target a broader range of customers. Also, it is very likely that the investors that bought the company have a greater appetite to invest more in it to grow and expand offerings and possibly directly or indirectly pair-up with other complementary service provides. Oak Hill, for example, has investments in other service providers like Genpact and EXL whose offerings could potentially complement Vertex's.
As this is the fourth buyout in the last 5 years, it looks like the trend to commercialize organizations originally developed as captives is gaining the slightest bit of traction. On the other hand, United Utilities have had to settle for less than half (£217m) of the asking price (£460m). This is the clearest indication of the immaturity of the BPO market in general and the lack of investment in further Vertex’s service offerings.
Investment Banking firm Dresdner Kleinwort called the price, which will result in a loss on disposal of about £30 million, "mildly disappointing" for the seller. Somewhat of an understatement especially as the company paid £95m for Marlborough Stirling in 2005. Remember that CapGemini sold its 14.% stake in UK IT group Vertex Data Consulting to United Utilities PLC for £47.5m cash in November 2004.
In any case, a spin-off was good for Genpact and WNS. Will Vertex find the same good fortune? For a yes answer, Mr. Morgan believes that Oak Hill will need to reassure the clients of Vertex, many of whom have known that Vertex was on the sale block, of their intentions and plans to ensure that many of the contracts due for reletting are still within the fold and of course remain profitable against an aggressive price-aware BPO market.
Author: Commentary, HROA EditorMore articles by this author...
-
|
- Print |
- Email Page
