TH Lee Putnam Bets On Outsourcing –

More than three and a quarter million: That’s how many U.S. jobs Forrester Research believes will be lost to offshoring by 2015. And other estimates make that number look small. While a dust-up over offshoring is sure to be carried out behind podiums in this year’s election debates, it is unlikely that anything will slow this trend-not when Indian software developers make just $.85 more than America’s minimum wage and domestic developers command around 10 times that amount.

TH Lee Putnam Ventures, with an eye on this trend, recently agreed to acquire SPI Technologies, a publicly held content outsourcer whose stock is listed on the Philippines Exchange. TH Lee Putnam paired with GIC Special Investments for the $100 million transaction, which is said to be one of the largest deals in the multi-country business-process outsourcing industry.

SPI Technologies, founded in 1980, focuses on providing IT-enabled outsourcing needs for the legal/litigation support, publishing and healthcare industries. The business, with 18 offices in the U.S., Asia and Europe counts Elsevier, H.W. Wilson, Harvard University Press and other major law firms and healthcare providers among its list of customers. In 2003, the company had $12 million in EBITDA, on revenue of $40 million.

While SPI plays into the general offshoring trend, TH Lee Putnam Managing Director Ramanan Raghavendran said the company also looks to be a part of the less divisive domestic outsourcing movement. “There are unquestionably some benefits that come from finding cheaper labor overseas,” he said, “but one of things that we liked about SPI is its ability to bring to the table a general outsourcing skillset. If a company has a problem going offshore, SPI can provide outsourcing needs domestically as well, which can still be a superior proposition to doing it in house.”

Content outsourcing consists of more than simple data entry tasks. “In publishing, for example, SPI takes care of everything from when the author writes the journal to when the copier receives the printer-ready product… In the legal sphere, if there’s a large case, law firms will need a person to scan over all of the case files, and index and tag them for easy retrieval,” explained Raghavendran.

He said this is just a sampling of what the company provides, but added that all three sectors targeted on SPI’s business map should see increasing demand for outsourcing needs. “In publishing, for one, it’s surprising how much is left in the market right now. It’s slowly being outsourced, but there’s a lot of room for growth.”

The company has already grown considerably since the start of the decade. Raghavendran cited that the business has posted growth rates of between 30% and 35% for each of the last three years, in both earnings and revenue, and he anticipates the business will continue to expand.

In financing the transaction, TH Lee Putnam and GIC funded the deal entirely with equity, although the buyers will put in a senior debt component in a couple weeks. The investors intend to keep the leverage on the business to a minimum, and will only put in debt totaling roughly 20% to 25% of SPI’s enterprise value. “The last thing we want to do,” Raghavendran said, “is to burden this company with an overwhelming amount of leverage.” As of press time, there was still no word yet on who the buyers will tap to provide the senior debt.

For the equity, TH Lee Putnam used its TH Lee Putnam Ventures, L.P, fund for the transaction, a $1.1 billion vehicle. The fund, raised in 1999, has a little more than $300 million of dry powder left at its disposal. The Singapore-based GIC, meanwhile, is a state government affiliated investor.

TH Lee Putnam has been active in the outsourcing space before. Other investments in the sector include technology outsourcing services provider Symphony Services, rebate program outsourcer Parago and direct mail outsourcer Click Tactics.


Buyer: TH Lee Putnam Ventures, GIC Special Investments

Target: SPI Technologies

Advisor: SPI: Edelweiss

Legal Counsel: Buyers: Weil Gotshal & Manges LLP; Platon & Martinez

Accountant: Buyers: KPMG