Private equity (PE) is undoing a part of US President Barack Obama’s drive against outsourcing by pushing companies to send their IT and back-office operations to cheaper destinations, which has helped Indian outsourcing companies close a number of deals with pharma, manufacturing, retail and energy utility companies.

Since the start of the global downturn last year, a large number of private equity firms have been driving companies where they hold a significant stake to outsource systems and back-office activities that can bring down operational expenses by up to 20%, said people connected with the trend.

“The slowdown has increased the equity investors’ return on investment (RoI) period to seven years from the earlier three years,” said Mark Hodges, chairman of EquaTerra, an international sourcing advisory firm based in Houston.

This rise in the term of investment horizon has made private equity investors become more aggressive on the boards of their portfolio companies in pushing for specific cost-cutting measures like outsourcing that were earlier left to company managements to decide, added Mr Hodges.

“Private equity firms are focused on creating value in the portfolio companies. One of the ways to accomplish this objective is to partner with companies that allow use of global talent pool for cost-effectiveness as well as speed, which enables them to stay competitive,” said a director of a large the US-based private equity house who did not want to be quoted, given the current view of the US government on outsourcing.

One of the portfolio companies of this PE recently signed a large outsourcing deal with an Indian company last year. Most of these portfolio firms are small. They did not consider outsourcing earlier, as they believed their in-house IT and back-office costs were not much. But the slowdown has changed the way they count their money. Every penny matters now. Expenses on IT hardware, systems, data centres now look complete waste, as they can just pass on these jobs to a third-party vendor at a fraction of the costs.