“We Play in Uncontested Spaces” Raman Roy

Roy founded Spectramind, India's first successful third-party BPO

Early this week, Quatrro BPO, the Raman Roy-founded specialist business process outsourcing firm, acquired UK gaming outsourcing company Babel Media. The size of the deal is estimated at $100-120 million, but the company has not confirmed these numbers. This is Quatrro’s sixth acquisition since its inception in January 2006 (see Quatrro’s M&A File below). An interesting aspect about the Babel deal is the presence of alternative asset investment firm DE Shaw as a co-investor. The New York-headquartered investor, which runs a private equity practice out of New Delhi led by former General Electric honcho Anil Chawla, has picked up minority stakes in Babel and Quatrro as part of the transaction.

This, however, is not the first time that Quatrro has partnered with a private equity investor to execute an acquisition. In fact, said Roy over a 20-minute telephonic chat from Delhi yesterday, this has been a consistent strategy all along. Excerpts:

Why did you get in a private equity partner on this deal?

We have always said that in our string of pearls strategy we would have multiple participants. I have various private equity guys in my other businesses also. DE Shaw is one of them. This has been a consistent strategy. We have not publicly disclosed the names. They are all participating at a business level. I wish I had the money for all the acquisitions that I have done…but I don’t. So we do a structured transaction in all the acquisitions that we have done and we own the majority of the company because management capability is the key differentiator Quatrro brings to the table.

Some deal size numbers have been floating around. Would that be the ballpark?

I can’t comment on deal size. But this is a leveraged transaction. There is a lot of debt involved. DE Shaw has taken a stake in Babel and a very small, single digit percentage, stake in Quatrro.

Has Quatrro’s founding model — incubate or acquire — evolved since? How do you size up the competition?

Our model was not to incubate or acquire…our model was to get into what we call uncontested spaces. Within those spaces we identified some areas that could be built organically, some where acquisitions were worthwhile and the some where we would initiate the business organically and then do an acquisition. For instance, our mortgage and accounting businesses. Both were initiated organically and when we came to a particular stage, we did an acquisition. The spaces that we have chosen, the more established companies have not even entered. They may come in because they find it profitable, seeing what we are doing, but right now we play in uncontested marketplaces. There is no competition. Think about it. In gaming, nobody is in that space. We have 1,500 customers, mid-market and small companies, for whom we do accounting and we use less than 600 people. We are far ahead of what we had projected.

How active are you as an angel investor (Roy is a founding member of the Indian Angel Network)?

Out of the seven investments we’ve made, I’m a co-investor in five. We set up Indian Angel Network because we saw that there is a need for funding much before the venture capital round. The so-called angel round, which was not available. But more important than the funding is the mentoring…when a person is trying to build a business he needs mentoring from someone who has done it before and can tell him that it is okay to stumble and make mistakes. That was our driver…we’ve created businesses, now we want to help other people do the same.

Quatrro’s M&A File:

• Scope eKnowledge
• Preferred Financial Group
• RSM McGladrey (captive accounting unit)
• AuxiCogent
• Anik Technologies

More on Raman Roy here and here.

Photo Courtesy: Quatrro