Hybrid deals grow in outsourcing arena.

• Author: Marshall, Jeffrey
• Position: Outsourcing

Years ago, the outsourcing arena was marked by giant companies, many of them banks or utilities, announcing that they were outsourcing computer functions to companies like EDS Corp., which had major shared-services centers.

In the next wave, the biggest outsourcing firms--and a few giant corporations like General Electric Co.--took shared-services functions from what may have been a low-cost state to a low-cost country like India, Ireland or the Philippines.

Now, there's a phenomenon in which corporate buyers are taking ownership stakes in outsourced ventures. A 2005 Global IT Outsourcing Study by DiamondCluster International found that the number of buyers that have bought into an outsourced relationship had doubled to 34 percent, from 17 percent in 2004.

John Halvey, an attorney who heads the global outsourcing practice at Milbank, Tweed, Hadley & McCloy in New York, says this hybrid deal structure stems from a confluence of economic forces. "This trend is playing into three or four broader macroeconomic trends," he says. "[The buyers] can get a ride on the equity if the companies go public, and suppliers like the fact that the clients' interests are aligned with theirs." He adds, "As private equity firms have been looking for hot areas, our segment has been one of the few growth spots."

"We're seeing very sophisticated private equity players" in these deals, Halvey says. "They're able to...