Outsource Magazine Issue 26 - (Page 52)

FEATURE M&A Bigger and Better Kiran Paruchuru and Ralf Abele, Robert W. Baird & Co., examine 2011’s drivers of merger and acquisition activity triggered by the growth and diversification in the OCC and BPO sectors – and whether this trend is set to continue into 2012… Kiran Paruchuru Kiran Paruchuru is a director in the Business Services Investment Banking team at Robert W. Baird & Co., with particular focus on the BPO/outsourced customer care arena. Ralf Abele Ralf Abele is a director in the Business Services Investment Banking team at Robert W. Baird & Co., with extensive global and European corporate finance experience. T he outsourced customer care (OCC) and business process outsourcing (BPO) sectors have generated significant merger and acquisition (M&A) activity in 2011, and this trend should continue based on the underlying dynamics of these sectors. The large and fragmented nature of the OCC and BPO sectors results in substantial consolidation potential. For example, the top ten players in the worldwide OCC market account for only about 25 per cent of total sector revenue, in line with market shares within the US and Europe. Most of the thousands of global participants lack the capital, resources, and technology necessary to remain competitive as corporate customers demand more sophisticated capabilities and broader service offerings. Many such firms are attractive acquisition candidates for larger, more diversified entities. With opportunities remaining for acquirers to create value, M&A transactions in the OCC and BPO sectors are fueled by the strategic push for scale, service offering diversification, and cross-border / global capabilities, along with renewed private equity activity. Scale and Scope Outsourcing companies continue to make acquisitions that enhance scale and scope in response to the pervasive trend of vendor consolidation among larger clients. Service providers with sufficient capabilities as well as strong execution frequently are rewarded with additional business from multinational customers seeking to prune their vendor lists. For corporate clients, targeted benefits from limiting the number of service providers include lower costs, reduced complexity, fewer points of contact, standardised service, consolidated billing, and detailed reporting and analysis. For outsourcing firms that have become larger through acquisitions, scale advantages include: ● greater purchasing power ● leverage on overhead ● capacity to reinvest in the business recruiting and retention of talent ● access to growth capital ● ability to service larger, multi-site contracts. OCC and BPO providers can achieve scale economies in areas such as facilities, telecommunications costs, and recruiting / training. Scale advantages typically translate to operating leverage on infrastructure, thereby reinforcing the strong competitive position of leading players. An acquisition typically increases the key measure of agent utilisation, particularly with offshore locations. Superior resources enable selected providers to make adequate people and technology investments, which are essential to maintaining customer Consendre mod eugait alit luptati sisisisit augait num iusti facidunt ipsumsan el eraestrud exerat ad onulla cor ing eumsandre ex elit “To acquire knowledge, one must study; but to acquire wisdom, one must observe.” – Marilyn vos Savant atetue tet ulla feu feum niamconEm ea commodiam ad tem dolortio Utat lum quisim et, quissi.Volobore m iurero dolobore. 52 ●● ● www.outsourcemagazine.co.uk http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of Outsource Magazine Issue 26

News & Comment
2012 in outsourcing
Fine – but what does it all mean?
Steering Steria
Separate Ways?
Getting Smart
Northern Lights
Heads in the Cloud
Connecting Service
Bigger and Better
NOA Round-Up
Breaking Through
You Cannot be Serious!
Back to the Future
Accounts Payable
The Power of Two
Public-Private Partnerships
Kill or Cure
Public Problems
Head-to-Head
Top Ten
The Legal View
HfS Research
Online Round-Up
Inside Source
The Last Word

Outsource Magazine Issue 26