Tuesday, June 09, 2009
Acquisition of Captives by Services Vendors
An article in WSJ (June 8, 2009) comments on organizations selling or closing their captives in India. I view this move from insourcing to outsourcing as a form of industry consolidation. I think acquisition of captives can be a bright spot for the services vendors in the current economic scenario. Such deals carry lower risks – primarily because of the revenue stream (at least for short term) and lower integration risk, as the vendor may already be providing services to the seller. The captives can also help vendor get into new areas such as product development and allow them to establish strategic, C-level relationships with the seller. From a valuation perspective, firms can possibly acquire captives at cheaper multiples these days and derive high returns over time when the market values the combined operations at higher multiples typically associated with well run, pure service plays.0 Comments:
Overall, captive acquisitions are great opportunities for the vendors to deploy their capital.
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