More Opportunities to Scale-up

Wednesday, 27 May 2009

As the global economy goes deeper into recession, there are greater opportunities available for large cash rich service providers to scale-up their capabilities. Corporations continue to be under pressure to cut costs, improve liquidity, and divest non-core business functions. Some organizations are restructuring their businesses by divesting their offshore captive BPO units.

Recent deals signify that BPO companies with cash reserves are buying out these units to expand their scale of operations, increase their clientele and develop multiple delivery centers. For instance, Teleperformance, a French outsourcing service provider, bought one of Dell’s call centers for Php200 m (~ US$4 m). With this deal, Teleperformance has expanded its delivery center in the Philippines and bagged a long term contract with Dell. In another deal, eTelecare Global Solutions bought The Phone House, TalkTalk Group’s contact center in South Africa, for $5.3 m. The contact center will continue to provide services to the TalkTalk Group.

Acquisition highlights

	Jan-Mar 2009 (This Quarter)	Oct-Dec 2008 (Last Quarter)
Number of deals	15	19
Average value of deal	USD 82.1 m	USD 161.4 m
Largest deals	TriNet acquired Gevity HR Inc for $98 m. Gevity is an HRO service provider with 675 employees. The number of employees to be retained by the new entity has not been disclosed. ACS acquired e-Services Group for $85m. e-Services specializes in BPO services. ACS will retain 4,000 employees of the e-Services Group based in Jamaica and St. Lucia.	TCS acquired Citigroup GS for $512 m. CGSL’s 12,500 employees will be part of TCS. EGS Acquisition Co. acquired eTelecare Global Solutions for $290 m. The management team and 13,000 employees will be part of the EGS Acquisition Company.

Sources: ValueNotes Outsourcing Dealtracker- Quarterly Analysis (Q1 2009)

Acquisitions across geographies

Large BPOs keen to geographically expand their delivery center capabilities will be on the look out for acquisitions, and there is a possibility that we will see several more deals in the next few quarters.

Sources: ValueNotes Outsourcing Dealtracker- Quarterly Analysis (Q1 2009)

The Q1 2009 quarter saw a significant change in the location of the companies acquired when compared to the last quarter, which saw the majority of the acquired companies based in Asia. Service providers are keen to expand their geographical presence and have centers in multiple offshore locations. For instance, Genpact acquired back office services delivery center of GE Money in Guatemala, ACS acquired e-Services Group in Caribbean. Majority of the companies that acquired this quarter are from the US (58%) as compared to 32% in Q4 2008.

Most corporates in the US have been under tremendous financial pressure over the last couple of months. Given the current scenario of liquidity crunch in the market, availability of quick cash is an appealing proposition for companies looking to sell out. On the other hand, for the acquiring companies, again the key factor is valuation - the value is what makes a buy out attractive.

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