PE firms exit BPOs via US public floats

Private equity (PE) players in the business process outsourcing (BPO) companies might have hit on a trend of selling a part of their holdings in the public market. This, experts say, is due to a paucity of strategic exits i.e to other companies or to financial investors.

So far, the BPO sector saw two such exit announcements. US-based PE major Warburg Pincus, which has investments in WNS, has chosen to sell its stake to public investors. PE player Oak Hill Capital Partners also took the open market route to exit from Nasdaq-listed BPO firm ExlService.

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WNS, in a recent Securities and Exchange Commission (SEC) filing, said Warburg Pincus would sell 5.25 million American depository shares (ADS) with an option to sell another 1.57 million shares in case of over-allotment. This accounts for 15 per cent of Warburg's stake in the company.

Warburg Pincus holds 21.3 million shares or 48 per cent holding in the company. At the current price of $9 per share of WNS, the 5.25 million shares would fetch Warburg $47.25 million. Warburg's entire stake would be valued at $192.4 million (around Rs 942 crore). The company is yet to decide on the price at which the issue would be sold.

Warburg had invested in WNS in 2002 by acquiring a majority stake in the firm from British Airways. While the amount invested by the PE players is not disclosed, in 2006 when the firm was listed on New York Stock Exchange, Warburg had sold part of its stake at $20 per share.

In recent times, PE players in the domestic market, too, chose the public route for exit. Some of these happened as the companies saw a rally of stock prices in domestic markets, allowing these exits.

For instance, in the latest round, Warburg Pincus sold its stake in Kotak Mahindra Bank for Rs 857 crore (around 2.3 -2.4 per cent stake). In total, Warburg has sold stake worth Rs 2,000 crore in the bank over several transactions.

ExlService, too, announced last December it was making a public offering of two million shares of common stock by certain stockholders affiliated with Oak Hill Capital Partners.

On December 6, 2011, the company through a press statement announced the closing of the previously announced public offering. According to the SEC filings, Oak Hill Capital Partners have sold two million shares at $25 per share in the open market gaining $50 million.

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According to the company's Nasdaq filings, it seems Oak Hill Capital Partners too has exited. In three separate transactions on December 6 it sold two million shares.

"In both cases, the investors have been with the company for 9 to 10 years. They would have evaluated all offers in the market and only then opted for the current route. Perhaps, they think that rolling out their stake in the market is a better option," said the head of a private equity firm on condition of anonymity.

Separately, WNS has also proposed to sell newly issued 5.25 million ADS to raise funds of $50 million (around Rs 245 crore).

The fund raised would be used for general corporate purposes, which may include capital expenditures, acquisitions, refinancing of indebtedness and working capital. At present, the company management is conducting road shows in the US for both the sales.