Apollo Health Street (AHS), the BPO arm of Apollo Group of Hospitals, has acquired Zavata, an Atlanta-based BPO which operates in the same segment, for $170 million. This synergistic acquisition is not only expected to strengthen AHS’ presence in the US market, but is also going to bring in specialised skill-sets, adding value to the company’s existing portfolio.
Apollo Hospitals group executive chairman Prathap C Reddy told mediapersons in Chennai on Thursday that “this acquisition will make Apollo Health Street the largest global healthcare BPO company”.
The acquisition is to be funded through a combination of debt and equity, broken into $120 million of debt and $50 million equity. Barclays Capital and Bank of India, the funding agencies for the acquisition, have offered an optional draw-out of $140 million (including $8 million refinancing portion of an earlier debt) to the company, including the debt component of this deal. The balance funding will come through internal accruals, Pratap Reddy said. Of $50 million equity, the Apollo Group will invest $25 million while private equity investors — JP Morgan’s investment arm One Equity Partners and Temasek Holdings — will fund the rest.
According to AHS CEO Andrew DeVoe, the valuation of Zavata was put at 10 times its EBIDTA. Zavata, which is engaged in end-to-end back office services and emergency transport billing, is the fourth acquisition by AHS. A year ago, AHS had acquired another US-based company, Armanti Financial Services for $30 million, after which AHS’ combined turnover touched $50 million.
Zavata has over 100 active customers and employs over 450 people in India and 500 plus in the US, Mr DeVoe said. The combined entity is aiming for a revenue of Rs 400 crore by March 2008.
AHS MD Sangita Reddy said the BPO business has been growing organically at a CAGR of 70%. It has operations in Hyderabad and the US, and is building a new facility in Chennai. When completed, the Chennai facility will have 2,000 seats. The first phase — with 400 seats and an investment of Rs 20 crore — will be ready in a year’s time, she said.
AHS serves the top three academic health systems and spans across 40 hospitals in the US. It is looking at several avenues for raising capital. On the possibilities of a future listing, Ms Reddy said, “we are working out the valuation”. AHS, which started offering platform-based delivery solutions five years ago, has been ahead of the industry in its outcome-based pricing models. “We operate in the high-end business space. The value of each contract ranges from $1 million to $5 million,” she said.
While process and domain knowledge are the company’s strength, Ms Reddy said the main challenge is that of attrition. AHS has over 300 staff in the US and 1,200 people deployed in the India operation.
Source: Economic Times