Shot in the arm

In what will be the second largest transaction in the BPO industry, Firstsource Solutions has entered into an agreement to acquire Kentucky-based MedAssist for $330 million (Rs 1,349 crore). MedAssist has 1,400 employees and is a provider of revenue cycle management services to the healthcare industry. For Firstsource, the acquisition brings to the table MedAssist's over 1,000 clients, among which are hospitals and physician groups. MedAssist's capabilities provide Firstsource with a pan-American presence in the provider segment that consists of over 5,000 hospitals. The largest buyout in the BPO sector prior to this was Wipro's buyout of Infocrossing for $600 million.

For 2006, MedAssist's revenues stood at $99 million (Rs 445.5 crore) with margins at the earnings before interest, taxes, depreciation and amortisation (EBITDA) level of 22-24 per cent. At that level, the price tag works out to around 12.5 times EBIDTA. "We expect the deal to close in 3-4 weeks," says Ananda Mukerji, Managing Director & CEO, Firstsource. MedAssist is a zero-debt company and this will be an all-cash buyout. Private equity firm RoundTable Healthcare Partners holds a 65 per cent stake in MedAssist while the balance is split between employees and MedAssist's CEO, among others.

Firstsource will fund the $330 million acquisition through a mix of internal accruals and debt. While internal accruals will be to the extent of $55 million, another $275 million will come from a five-year loan. "We have cash reserves of $80 million on the balance sheet. Given that the debt on our balance sheet is around $30 million, our debt to equity post this acquisition will be a little less than 1:1," notes Mukerji. "The cash flows from MedAssist would more than take care of the interest outgo." The acquistion is Firstsource's third in the US and its eighth overall.