Source: www.thehindubusinessline.com

Prime Focus, a movie post-production company, has announced that it is in discussions to acquire two US based entities, confirming recent news reports. Prime Focus has been scouting for acquisitions in the US, specifically Los Angeles, for quite some time, hoping to have access to the world’s biggest market for post production. Neither the identities of these targets nor the outlay has been disclosed.

The transaction would be subject to due diligence and execution of definitive agreements. Prime Focus is likely to be adequately funded for the acquisition, with its board recently approving to raise funds through issue of overseas convertible instruments and external commercial borrowings to the tune of $85 million.

Prime Focus took over UK-based VTR about two years ago for $55 million and successfully turned it around by outsourcing some of the post production work to the Indian unit. It hopes to replicate this success with the US-based entities as well.

Gaining exposure

International acquisitions offer Prime Focus the opportunity to work on more sophisticated projects, gain exposure to the latest technology and allow them to capitalise on the outsourcing opportunity in India. From a financial perspective, the very size of the companies proposed to be acquired may substantially boosts revenues.

Prime Focus has mentioned that the entities that it proposes to acquire will likely contribute 30 per cent of the consolidated revenues post acquisition. The share of Indian operations in overall consolidated revenues is likely to decline further, from the current 35 per cent.

The acquisition, if it goes through, will impact profitability in the near term. Also, even if Prime Focus manages to turn around the entities, margins for international operations will remain lower.

This is because a significant amount of the work still needs to be done onsite. While Prime Focus enjoys margins of over 60 per cent levels in the domestic business, as represented in the standalone numbers, on a consolidated basis, margins currently hover at about 30 per cent.

Source: callcenterinfo.tmcnet.com

The global outsourcing market for information technology, business process outsourcing (BPO) and call center services is expected to continue to grow over the next few years. This global market includes both onshore and offshore delivery of outsourcing services.

According to an independent forecast study conducted by information and communications technology research and advisory firm, XMG, these segments of the global outsourcing market will finish at $297 billion this year with an estimated growth rate of 19.3 percent and is expected to hit $450 billion by 2010.

The study focused mainly on the performance of the top Asian offshore countries, namely India, China, Malaysia and the Philippines. The study projected that India would have $34.1 billion in total revenue by yearend, at 29.5 percent compound annual growth rate (CAGR) and will obtain 11.5 percent share of the global market.

At the same time, China is estimated to have 4.4 percent share of the global market with 2007 total revenue figures forecasted to hit $13.1 billion while growing at 47.9 percent CAGR.

“While it is no surprise that India and China continue to lead amongst the offshore countries, our study also showed a noteworthy insight to those following the growth of other offshore countries in Asia,” Lauro Vives, XMG Founding President and Chief Analyst, said in a company statement. “The Philippines is experiencing an unprecedented growth rate of 62% CAGR and will surpass Malaysia in 2007.”

The XMG intelligence report shows the Philippine’s revenue growing at almost $4.1 billion to achieve 1.4 percent of the global market. Vives noted that this particular industry has far exceeded all analyst expectations.

By comparison, Malaysia’s revenue forecast by yearend is estimated at $3.6 billion to achieve 1.2 percent of the global market share. In 2006, Malaysia and the Philippines were neck to neck with 1.04 percent and 1.02 percent respectively of the share of the global revenue pie.

“Locators are turning to other countries where there is headroom for further growth and expansion,” added Vives. “This continues to show that the strategy for expanding offshore rests on the availability of manpower in that country.”

“Our competitor intelligence report shows that the typical profile of offshore locators, whether service providers or captives, is to have the foresight that they can grow anywhere from 60% to 90% year on year unabated over the next two to three years.”

The XMG study showed continued strong growth in the offshore markets as the industry continues to deal with the rising cost of operations and the continuing depreciation of the US dollar. The cost of operations in India and the Philippines is increasing due to wage rate hikes to retain employees and the rise in real estate prices.