Tuesday, May 29, 2007

Does private equity mean a boon for offshore outsourcing?

Source: Zdnet

Patni Computer Systems, an Indian outsourcing company, plans to aim its services at private equity firms in a move that makes a lot of sense given the acquisition barrage in the U.S.

TPG and Goldman Sachs bought Alltel for $25 billion. Last week Cerberus Capital Management bought Chrysler for $7.4 billion and Bausch & Lomb accepted a $3.6 billion deal from Warburg Pincus. Pick a day and there’s a company going private.

Patni, which is on target to post annual revenue of $600 million to $700 million, is hoping to capitalize on the private equity craze. And why not? These private equity titans have to integrate information technology or start delivering services as they acquire companies. The issue: Private equity firms are more interested in their portfolios and leveraging operations than technology infrastructure. Bottom line: Private equity firms may be more likely to outsource technology operations.

Last week, Patni formed a consulting services practice within its manufacturing unit to handle items like due diligence and post acquisition integration. Watermill Group, a private equity firm, used Patni when it acquired Latrobe Specialty Steel.

Watermill says it will hand over Latrobe’s entire IT infrastructure to Patni eventually. “Moving into consulting is a major move for us,” says Russ Boekenkroeger, executive vice president of Patni’s U.S. operations. Patni’s move into consulting is one way Indian outsourcing firms are looking to move up the technology food chain.

Sanjiv Bhatia, vice president of Patni’s consulting services practice, says the move toward catering to private equity firms is a natural step for a company that traditionally deals with manufacturing customers. “When private equity firms make acquisitions they need a lot of the services we provide to manufacturing customers,” says Bhatia. “Private equity lacks skill set to provide the services.”

Patni plans on getting involved with private equity customers on many fronts, says Bhatia. If a firm buys another company, say a business that is “carved out” of a larger parent and sold, Patni will look at an acquisition and outline what needs to be done to move operations. These day-to-day services include human resources, purchasing and information technology, including data centers and network infrastructure. Patni will also provide technology infrastructure if needed either on a permanent or temporary basis. Another possibility: Installing a CIO at an acquired company.

If Patni’s bet on private equity is correct, it may find itself a lot of new clients. Another possibility: The private equity boom may be a trigger to move more work offshore. Patni appears to be ahead of the curve, but other offshore providers are likely to be fast followers when it comes to targeting private equity firms.