Due to the current financial crisis, particularly in the US, several multinational corporations are restructuring their businesses. Organizations with offshore captive BPOs are considering divesting these units. With the economic slowdown, valuations have become attractive, and the acquisition of these captives has gained traction.

In this quarter (Q4 2008 - October to December), the largest M&A deal was the acquisition of Citigroup Global Services Ltd (CGSL), the captive arm of Citigroup, by Tata Consultancy Services (TCS) for $512 million. With this acquisition, TCS BPO has become one of the frontrunners in the BPO industry. Citigroup has got some liquidity at a time when the company is under dire financial pressure. The company has signed a 9.5 year process outsourcing contract with TCS valued at $2.5 billion.

Quarter highlights

Source: ValueNotes Outsourcing DealTracker 

 M&A deals by services

In the midst of the economic slowdown, we saw a considerable drop in the M&A space. The overall deals reported reduced from 32 in Q3 2008 to 19 in Q4 2008. There has been a major slump in the customer relationship management (CRM) deals this quarter (15%) which was a hot favorite in the previous quarter (nearly 30%).

Source: ValueNotes Outsourcing DealTracker
Note: other services include specialist services like medical transcription, underwriting, supply chain services, etc

Overview of the quarter’s contracts

Outsourcing activity fell in Q4 2008, compared to the previous quarter. The total number of BPO/KPO contracts recorded this quarter was 79, as against 87 in Q3 2008. The number of contracts signed in the earlier quarters were 58 in Q2 2008 (Apr-Jun 2008) and 78 in Q1 2008 (Jan-Mar 2008).

Average contract value and tenure (declared) for Q4 2008
 
Source: ValueNotes Outsourcing DealTracker

The total value of contracts (publicly declared) was $3.8 billion, approximately 17% lower than $4.4 billion that was recorded in the previous quarter. The average deal size has been falling for the last two quarters. In Q4 2008, the average deal value was $155.7 million, while in Q3 2008 it was $163.3 million, and in Q2 2008 it was $208.4 million. The largest contract this quarter was the $875 million print management outsourcing contract awarded by Houghton Mifflin Harcourt Publishing (USA) to R.R. Donnelley in October.

Tenure of contracts

A significant change that can be seen in Q4 2008 is a rise in the deals with a tenure of five years or more. 72% of the total contracts in the quarter fall in this group, as compared to 52% in the previous quarter. The proportion of one-year contracts dropped to 4% in Q4 2008, compared to 12% in Q3 2008. The longest contract spanned for 12 years, while the shortest was for 1 year.

Contracts by tenure


Source: ValueNotes Outsourcing DealTracker

Contracts by Services

CRM contracts increased to 31% this quarter, compared to 25% in the previous quarter. HRO saw a slight growth - 19% of total contracts in Q4 2008, compared to 17% in Q3 2008. Knowledge services, mainly consisting of publishing, research & analytics, engineering services and e-learning, recorded a fall, contributing 15% of the contracts in Q4 2008 as compared to 23% in the previous quarter.


Source: ValueNotes Outsourcing DealTracker
Other services: specialist services like medical transcription, underwriting, supply chain services, etc