The Hindu Business Line : Firstsource buys US-based MedAssist for $330 m

In one of the largest cross-border acquisitions by an Indian BPO company, ICICI Bank-promoted Firstsource Solutions has agreed to pay $330 million (Rs 1,353 crore) for buying a US company, MedAssist Holdings, to strengthen its presence in the profitable healthcare insurance services space in the US.

The acquisition cost is three times the annual revenues of Firstsource itself. The Indian BPO company had reported a turnover of Rs 439 crore for 2006-2007.

Firstsource’s US subsidiary will finance the acquisition by raising $275 million through debt; the remaining amount will be raised through the existing cash reserves and internal accruals, said Mr Raju Venkatraman, President and COO of Firstsource.

The acquisition will be margin-neutral for the current fiscal, and will turn margin-accretive come fiscal year 2009, according to Mr Rajesh Subramaniam, Chief Financial Officer.

Revenues

The acquisition will increase Firstsource’s US component of revenues to 55 per cent from 45 per cent currently, he said.

MedAssist had revenues of $99 million for the year ended December 31, 2006 and an EBITDA margin of 22-24 per cent.

“The acquisition enables us to process claims generated by MediaAssist and to cross-sell Firstsource’s services to MedAssist’s customers," Mr Ananda Mukerji, Managing Director and CEO, Firstsource Solutions, said.

The acquisition gives Firstsource, which already has a presence in the ‘payor’ side (insurance company end), to enter into the ‘provider’ (hospital end) segment in the US, consisting of 5,000 hospitals nationwide.

hospital care services

While hospital care services in the US amounts to approximately $700 billion, administrative costs are estimated to be about $100 billion, said a statement from Firstsource. This constitutes a significant opportunity for BPO service providers.

The Firstsource scrip was up by 9.9 per cent to close at Rs 79.4 on the BSE on Wednesday.