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Serco Selling BPO Arm - Classic Case of Grapes Turning Sour or Clever Business Strategy?

Jan 16, 2015 | Technology | Future Market Insights

UK-based outsourcing company Serco Group announced plans to sell its business process outsourcing (BPO) sector in November 2014. This was a part of the company’s long-term plans to focus on becoming a business-to-government (B2G) provider. A company statement about the planned sale specified that while the BPO arm was a perfectly healthy operation manned by competent personnel, it didn’t sit well with the company’s future expansion plans, and was thus being discarded. The BPO arm is estimated to cost around INR20 billion (approximately US$ 323.36 million).

Serco began its consolidation of BPO services thud in the middle of the 2008 recession, when it took control of Indian company InfoVision. Serco then went on to acquire Intelenet, Excelior, The Listening Company, and the BPO arms of Vertex and MENA Business Services FZ LLC (MBS). This spate of acquisitions made Serco the third biggest BPO provider in India.

While the initial drive bode well for the British company’s expansion plans, things soon took a turn for the worse. 
The troubles for Serco began due to the lack of a central strategy with which BPO services would be emphasized upon, and which discarded upon consolidation. The frailty of Serco’s overlying strategy can be observed in the disparity between the companies it acquired over its expansion period: 

  • InfoVision excelled in database management and other back-office operations
  • Intelenet, on the other hand, had a strong focus on banking, evidenced by their partial takeover by Barclay Corp in 2004 to manage the global banking giant’s core processes
  • Excelior and MENA Business Services offer contact centre and business consultancy services

The failure to concentrate the output of these companies into a centrally devised BPO sales strategy has cost Serco dearly, as the gaps in its range of services and market presence means that it is nowhere near becoming a leading provider of BPO solutions.

Areas where Serco has a strong presence include BFS BPO, CRM, etc. Unfortunately for the British giant, these services have become increasingly commoditized since their integration into the Serco network. None of these services provide significantly for Serco any more, with each hovering around the 7%-8% mark in contribution margin. Serco’s lack of a major market presence in the fields of F&A, HRO, supply chain services, etc., can be blamed for their position, since these are the verticals on which the BPO industry’s focus now lies.

The nature of the rights issue Serco formulates to hasten the sale of its BPO arm will determine its fate to a major degree
Serco has yet to decide exactly what assets it wants to retain and which to discard, and the discussions are expected to begin later this month. The resultant rights issue will determine the division of the assets, the amount of funding needed to be raised after the sale, etc.

Intelenet has emerged as a major contender for the purchase of Serco’s BPO arm, with other private equity players also circling in.

Serco plans to raise up to GBP550 million through their rights issue and sale of a few non-core assets, and will decide the division of assets based on the capital thus raised. This has presented the BPO giant with a dilemma between choosing sectors with easy access, such as customer services or insurance processing, and those with an inherent aspect of standardization, such as F&A and procurement outsourcing.