Carlyle Group buys 70 percent stake in VXI Global Solutions

October 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

US private equity firm the Carlyle Group has agreed a deal to acquire a 70 percent stake in China-focused global outsourcing business VXI Global Solutions LLC in a deal that values the company at around $1bn.

The Carlyle Group’s investment into VXI Global Solutions is a sure sign that the company believes the future of outsourcing lies in China and not, as previously, in India and the Philippines, where so many companies have outsourced many of their corporate functions in recent decades.

The outsourcing industry in the Philippines has arguably surpassed the space in India in recent years, becoming the biggest contributor to the Philippines’ gross domestic product. Some analysts have suggested that industry revenue in the Philippines could reach $25bn by 2016, and $55bn by 2020.

These countries have previously proved popular with organisations looking to outsource their operations thanks to the more widespread use of English among the workforce; however, Carlyle Group is betting that in the long run China is the better solution to organisation’s outsourcing needs. That said, there are a few challenges, such as fragmentation in the country’s outsourcing industry and a shortage of people with international business skills, which may act as barriers to the industry’s success in China.

The Chinese business process outsourcing (BPO) sector, while growing, still remains relatively small when compared with India and the Philippines. As more and more Chinese organisations look to outsource their functions, Carlyle hopes to be in a position to capitalise on this development.

Carlyle has likely been drawn to VXI by the size of the company’s operations within China, and globally. VXI is one of the largest players in the still comparatively small BPO industry in China. It is established in six key mainland Chinese cities as well as Asia’s primary financial centre, Hong Kong. Crucially, the Chinese e-commerce juggernaut Alibaba is one of VXI’s key clients.

The PE firm has been somewhat active in the global BPO industry in recent years; indeed, Carlyle’s investment in VXI is the fourth such acquisition that the firm has made in the sector in the past two years. Notably, earlier in 2016 Carlyle acquired a 90 percent holding in Spanish outsourcer Digitex Grupo, a company which enjoys a considerable presence in Spain and across Latin America.

Los Angeles, California based VXI Global also has a notable foothold in the South America market, with operations in Guatemala, El Salvador, and Barranquilla, Colombia. The firm, which employs around 17,000 people globally, with more than 8000 working in China alone, has undergone a period of considerable growth of late. In April, the company announced plans to hire another 350 employees in its Youngstown, Ohio call centre in the US.

VXI Global has itself become a major player in China’s outsourcing industry recently as a result of some notable dealmaking activity. In 2015, the company acquired European outsourced product development services provider Symbio, which has both sales and delivery centres on the Chinese mainland.

As part of the deal for XVI, private equity firm Bain Capital LLC will be selling the one-third stake in the company it has held since 2013. Data from Dealogic suggests that although private equity to private equity deals are relatively rare in Asia, they are becoming more commonplace. In 2016 to date, PE companies have done 13 deals in the Asia-Pacific region, in which they bought stakes from other PE firms, with a combined value of $2.3bn.

Recently, Carlyle has been actively acquiring stakes in a number of companies. Shortly agreeing the deal for VXI, Carlyle confirmed that it had agreed to acquire a 50 percent stake in Portuguese rigid plastic packaging producer Logoplaste, valuing the firm at around €660m.

Richard Summerfield