Serco expects final bids for Indian BPO unit in early April

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By Pamela Barbaglia and Neil Maidment

LONDON, March 5 (Reuters) - British government services group Serco expects binding offers for its Indian outsourcing unit in early April, with private equity firms the strongest contenders to lead a management buyout, three sources familiar with the matter said.

Serco, which runs one of India's largest business process outsourcing (BPO) firms and has over 60,00 employees, has given at least four buyout funds access to confidential material, one source said, adding due diligence will continue for three weeks.

U.S. fund Blackstone (NYSE: BX - news) and Barclays (LSE: BARC.L - news) are preparing a joint bid drawing on Blackstone's knowledge of the business and close ties to its management team in India, the sources said, pointing to Blackstone's investment in the same company, formerly called Intelenet, between 2007 and 2011.

Three other heavyweight buyout funds -- Carlyle, Clayton, Dubilier & Rice (CD&R) and Apax -- are also lining up offers to gain a foothold in India's outsourcing industry, the sources said.

Serco, Barclays, Carlyle, Apax and CD&R declined to comment, while a Blackstone representative was not immediately available.

Serco's shares, down almost 54 percent on a year ago, were up 5.32 percent at 217.8 pence at 1630 GMT.

Serco, whose services include running Britain's Atomic Weapons Establishment and support for the British and U.S. military, is restructuring after a string of contract failures and profit warnings that hit its reputation and ramped up debt.

The sale of its Indian BPO arm, led by Citi, could fetch up to 360 million pounds ($548 million), drawing interest from industry players such as Teleperformance (Paris: FR0000051807 - news) and Sykes , one source said.

The unit, which caters to private sector customers in insurance, banking, and retail among other sectors, has revenue of 238 million pounds with EBITDA (earnings before interest, taxes, depreciation, and amortisation) of 36 million pounds.

It was sold to Serco for $634 million in 2011, a valuation of about 12-13 times its EBITDA.

But its value has since dropped and could now fetch around 8 times core earnings, one source said, pointing to a more conservative valuation of 288 million pounds.

To reduce borrowings, Serco said in November it would launch a rights issue of up to 550 million pounds by the end of March and also put businesses up for sale, including its BPO unit, as part of new boss Rupert Soames' focus on government work over private sector contracts.

Serco is due to publish its 2014 full-year results in March but has yet to confirm a date. ($1 = 0.6566 pounds) (Editing by Freya Berry and David Evans)