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Thursday, January 05, 2006

Private Equity Dalliance With Outsourcing Majors

Private-equity players are dallying with the business of computer outsourcing, in which corporations contract out their computer-maintenance and operations to the likes of CSC. The outsourcing companies generate huge streams of cash, a quality that private-equity firms seek because they can then put a lot of debt on the companies they acquire and produce greater returns for their investors. These outsourcing companies are in a highly competitive market that is being transformed by traditional offshoring vendors. A group of buyout shops including Blackstone, Texas Pacific Group, Bain Capital and Silver Lake Partners could announce the acquisition of Affiliated Computer Services. In a separate development, Blackstone Group and HP are exploring a possible buyout of CSC as private-equity buyers begin to sweep through the computer-outsourcing business. Although Blackstone is in both deals, CSC and ACS have different business models with only slight overlap. CSC does more IT outsourcing - that is, its customers outsource their information-technology networks for CSC to manage. ACS focuses more on business-process outsourcing, helping its corporate clients deal with processing their payments, for example. It is possible that at some point Blackstone might invite its partners in the ACS deal into the CSC deal. As we wrote earlier about the coming, restructuring of outsourcing players, fresh action is brewing in this segment. All this while there is flurry of new deals getting announced and amidst an earlier near miss of a potential takeover by CSC shows that a lot more action await us ahead. Attention not to be lost on the fact that private equity players are active now- meaning multiple rounds of activities involving the bought out entities would follow in due course.

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