Emerging Market Deal of the Year: Carve-out ExlService Generates 34x Return


Firm: Oak Hill Capital Partners

Target: ExlService Holdings

Entry Price: $1 and commitment to invest $7.5 million in growth capital

Sale Price: Exited through secondary trades in late 2011 and through a final exit in May 2012 at a $750 million market capitalization

Hold Period: 10 years

Return Multiple: 34x

Advisers: Citigroup and The Goldman Sachs Group (IPO lead underwriters in 2006) and legal counsel Paul, Weiss, Rifkind, Wharton & Garrison


* Transformed a captive business into a stand-alone entity.

* Revenue grew from less than $30 million in 2002 to $443 million in 2012.

* Number of employees grew from 1,600 employees in 2002 to over 21,000 employees worldwide.

* Broadened geographic footprint from two delivery centers in India to 25 delivery centers worldwide.

Nine years ago, business was a different story for ExlService. The company was founded in 1999 by former Bank of America executive Vikram Talwar and current CEO Rohit Kapoor. Operations were based in India with just four customers, 1,600 employees and two delivery centers. The business was hugely reliant on its parent, Conseco. In fact, at the time of acquisition, over 90 percent of its revenue came from the financial services firm.

That was when, in December 2002, Oak Hill Capital sealed a deal with Financial Technology Ventures and ExlService management team to purchase the business for $1 and a commitment to invest $7.5 million in growth capital.
The investment was borne out of Oak Hill Capital’s strategy to seek opportunities in the once-nascent Indian business process outsourcing sector. In 2001, Oak Hill Capital identified outsourced services as a significant market opportunity, particularly the idea of offshoring complex services to India and other emerging market countries with large, well-educated workforces.

The firm’s attraction to the business process outsourcing sector was driven by increasing pressure from companies to reduce operating expense, the falling cost of global telecommunications and the quality, cost and scale of India’s English-speaking talent pool.

This strategy led to Oak Hill Capital’s investment in EXLService and its subsequent investment in Genpact Limited, a captive of the General Electric Company, in 2004.

In March 2002 Oak Hill Capital approached Conseco about acquiring a majority stake in EXLService. Conseco agreed to negotiate the transaction with Oak Hill Capital on an exclusive basis given the firm’s existing relationships with Conseco. Oak Hill Capital originally agreed to pay over $50 million for a majority stake, implying a valuation in excess of 10 x LTM EBITDA. As part of the transaction, Conseco provided a long-term contract with increasing minimum volumes.


During the due diligence process, Conseco experienced some financial difficulty, limiting its ability to provide contractual commitments. As a result, Conseco was also forced to migrate processes back to the United States.

Without its anchor customer, EXLService would have been likely to generate operating losses and would have likely lost its management and highly trained personnel. Assessing the situation, Oak Hill Capital subsequently had to structure a completely different transaction due to Conseco’s bankruptcy timing to preserve certain Indian tax holidays and to provide EXLService management with substantial ownership (around 30 percent) of the company on a tax-efficient basis.

And so in December 2002, Oak Hill Capital led the acquisition of EXLService for $1. The Oak Hill Capital-led investor group also invested $11.5 million in cash into the company to fund future growth. Oak hill Capital invested $7.5 million of this amount.

A major challenge, said Oak Hill Capital managing partner Steven B. Gruber, was maintaining the confidence of EXLService’s personnel in a period when Conseco (upon which EXLService was reliant for 90 percent of its revenue) experienced significant financial deterioration and eventual bankruptcy. EXLService therefore faced a near-immediate loss of all of Conseco’s business.
In the first 100 days of Oak Hill Capital’s ownership tireless work by CEO Vikram Talwar and CFO Rohit Kapoor, with support from Oak Hill Capital, resulted in revenue wins from Dell and Aviva, which more than offset the revenue lost from Conseco.

By the end of 2003, EXLService had over 1,600 revenue-generating agents representing a 68 per cent year-over-year increase, in spite of the elimination of almost all its business with Conseco. In 2004, revenue doubled to $61 million and EBITDA grew to $10 million. EXLService went public on NASDAQ in October 2006 and IPO proceeds repaid the shareholder debt and preferred equity issues to Oak Hill Capital.

The company’s growth continued throughout the global financial crisis and EXLService has completed seven acquisitions since 2006. These included Inductis Inc., a New Jersey-based consulting and analytics firm, in June 2006; the back-office operations of Schneider Logistics in Olomouc, Czech Republic in July 2009; Professional Data Management Again, a developer of a policy administration platform for life, health and annuity insurance in May 2010; Outsource Partners International Inc., a finance and accounting outsourcing service provider, in April 2011; and Trumbull Services, a property and casualty insurer service provider, in October 2011.

In 2012, EXLService’s revenue and EBITDA were $443 million and $83 million respectively. Oak Hill Capital exited its position through secondary trades in late 2011 and through a final exit in May 2012 at a $750 million market capitalization. In total the deal returned 34.2x invested capital, realizing, in aggregate $256.1 million of proceeds and a 50.7 percent gross IRR. Today, the business has delivery centers in India, the Philippines, the United States, the Czech Republic, Romania, Malaysia and Bulgaria, with sales offices in New York, New Jersey and London.

Said Gruber: “Our success in EXL was a direct result of our proactive, theme-based investment strategy at Oak Hill Capital, which enabled us to capitalize on the right opportunity, in the right target sector, at the right time, with the right management team. With these factors on our side, we were able to help transform EXL into a market leader in a rapidly growing and increasingly important sector of business services.”