Overview of M&A deals in Q2 2009 (April - June)

Large BPO and KPO companies have been on the acquisition trail, primarily to have an onshore marketing presence to serve clients. There has been a change in this trend in the last couple years. Companies are moving towards a global service delivery model so that they can tap the best global resources, expand their client reach and delivery capabilities, and overcome cross-cultural barriers.

The acquisitions made by Aegis, Capita and BancTec in Q2 2009 (Apr-Jun) are a few examples. Aegis acquired UCMS Group for USD 40.7 million so it could add Australia as a global delivery center. Capita acquired the three delivery centers of Capmark Services Europe to better serve its European customers. BancTec expanded its delivery center in the Nordic region of Europe to offer a wider portfolio of services. These deals not only helped increase the companies’ geographic spread of delivery centers, but also expanded their client base and service offerings.

	Apr-Jun 2009 (Q2)	Jan-Mar 2009 (Q1)
Number of deals	7	15
Average deal value	USD 28.6 million	USD 82.1 million
Largest deals	Aegis acquired UCMS Group for $40.7m. UCMS specializes in contact centers and customer relations services. With this acquisition, Aegis will expand its services and global delivery centers to include Australia. Capita acquired Capmark's European financial services units for GBP10m. Capmark provides services to securitizations, commercial mortgages, commercial property loans and asset managers. Capita will expand its financial services administration operations in the European market.	TriNet acquired Gevity for $98m. Gevity is an HRO service provider with 675 employees. 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.

    Source: ValueNotes Outsourcing DealTracker

M&A deals by services

In the midst of the economic slowdown, there has been a considerable drop in the number of M&A deals recorded - from 15 in Q1 2009 (Jan-Mar) to 7 in Q2 2009 (Apr-Jun). The number of deals recorded in the F&A space fell by 50% compared to Q1 2009; CRM deals fell by 75%; while there were no deals recorded in the KPO space.

  Source: ValueNotes Outsourcing DealTracker

Note: Other services include medical transcription, underwriting, supply chain services, etc

Overview of BPO/KPO contracts in Q2 2009

Outsourcing activity fell by 24% in the second quarter with just 51 BPO/KPO contracts recorded during the period, compared to 63 in Q1 2009.

Average contract value and tenure (declared) for Q2 2009

  Source: ValueNotes Outsourcing DealTracker

The total value of contracts (publicly declared) in Q2 2009 was $1 billion as compared to $19.6 billion in the previous quarter. (The sharp rise in Q1 was due to a $17.5 billion deal signed in February 2009. If this deal was not included, the total value in Q1 would have been $2.1 billion.) The average deal size for Q2 2009 was $111 million. The largest contract signed was the $857 million outsourcing contract awarded by Axa Sun Life to Capita Group in June 2009.

CRM outsourcing contracts on the rise
 

Source: ValueNotes Outsourcing DealTracker

Note: ‘Other Services’ includes specialist services like claims management, transaction processing and supply chain services

The number of F&A contracts decreased from 26% in Q1 2009 to 14% in Q2 2009. We believe that this may be due to banks and financial institutions divesting their captives and signing outsourcing contracts with the acquirer. Customer relationship management (CRM) contracts increased by 12% over the previous quarter. As the business environment is becoming more challenging, companies are focusing on providing better customer service through outsourcing. ‘Other services’ saw a 2% fall over the previous quarter. Knowledge services, mainly consisting of publishing, legal, engineering and analytics, showed an increase, contributing to 10% of the contracts in Q2 2009 as compared to 6% in the previous quarter.  Most of the deals signed in the knowledge services segment were in the publishing vertical.

Public sector contracts lead

Contracts by vertical

The public sector segment has taken the lead when compared to the number of outsourcing contracts recorded in the other verticals in Q2 2009. Public sector outsourcing contracts contributed 19%, compared to 10% in the previous quarter. Over the past few years, the US government had been a major buyer of outsourced services. The second quarter saw a drop in the number of contracts signed in the healthcare, financial services, pharmaceutical and telecom verticals. While the number of contracts in the insurance sector grew substantially - from 6% in Q1 2009 to 11% in the second quarter, the total BFSI outsourcing contracts only saw a slight increase - 21% in Q2 2009 compared to 19% in Q1 2009.