Aurum Deal of the Month – May 2017

HCL Tech acquired 100% equity US-based business process outsourcing firm Urban Fulfilment for USD 30 million

The Transaction

In April 2017, HCL Technologies announced its intention to acquire 100% stake in Urban Fulfillment Services, LLC, USA (UFS), a mortgage business process and fulfillment service provider to clients in the US. HCLT will be acquiring 100% outstanding shares of UFS through cash. The total cash consideration for this transaction is up to USD 30 million including contingent payments subject to certain financial milestones. The transaction is expected to be completed by the end of June 2017, subject to regulatory approvals.

About the Target

Urban Fulfilment Services, LLC, is mainly engaged in providing mortgage business process and fulfilment services to its customers. The company has more than 350 employees in the USA across 3 centres. UFS was a part of Urban Settlement Services (USS) which was setup un 2002. USS provides a wide variety of outsourced services to its clients which include mortgage fulfillment services, home retention solutions, appraisals and valuation services, title and settlement services, document fulfillment, call centre and collection services. UFS’s Annual revenues in FY16 (ended December 31) stood at USD 48 million.

Figure 1: UFC Revenue (USD mn)

Entry into Mortgage Business for HCL

This acquisition would immediately bolster HCL’s presence into the mortgage business process outsourcing (BPO) market. In the United States, obtaining a Mortgage servicing is a highly regulated business and obtaining a license requires a company to obtain a number of regulatory approvals. Hence, through this acquisition HCL Technologies is expected to considerably improve its capabilities in mortgage BPO services, loan fulfilment and debt servicing space.

HCL on an acquisition spree

HCL has been aggressive in acquiring small firms to drive growth in newer areas such as cloud-based services, engineering design. In October 2016, the company announced acquisition of engineering and aerospace design service provider Butler America Aerospace for USD 85 million. HCL also bought Mumbai-based engineering service provider Geometric for INR 13 billion last year. HCL is not alone in their aggressive acquisition spree. Indian IT services sector is worth approximately USD 150 billion, and it is largely export dependent. All major Indian players have relied on inorganic measures to enhance their digital capabilities in order to compete globally.

Table 1: Select Digital Acquisitions by Indian IT majors

Acquirer Target Value(USD mn) Brief
Infosys Panaya 200 Provider of automation technology for large scale enterprise software management
Wipro Healthplan Services 460 A technology and Business Process as a Service (BPaaS) provider in the U.S. Health Insurance market
Wipro Appiro 500 A services company that helps customers create next-generation Worker and Customer Experience using the latest cloud technologies
Infosys Skava 120 A provider of digital experience solutions, including mobile commerce and in-store shopping experiences to large retail clients
Tech Mahindra The BIO Agency 52 UK-based digital transformation firm
Tech Mahindra Target Group 164 A provider of business process outsourcing and software solutions

The fears of a more a more protectionist U.S. technology visa program under a Donald Trump, is also driving Indian companies to accelerate acquisitions in the United States and recruit more heavily from college campuses there. Hence, the outbound acquisitions in this space are expected to witness hectic activity.