Telus International announced last week the acquisition of Competence Call Center (CCC) for ~€915m. The deal marks the biggest M&A in front-office BPO (CX Services) for 2019. It is also one of several investments in the DACH region and part of a global trend for market share acquisitions.

CCC gives Telus International scale for DACH markets

CCC is a private CX services provider founded in 1998 in Austria. It has ~8.5k employees in 22 locations in Austria, Bosnia and Herzegovina, France, Germany, Latvia, Poland, Romania, Slovakia, Spain, Switzerland, and Turkey. In Germany, the company has eight sites including two in Berlin (the company’s HQ), as well as one each in Vienna and Biel, Switzerland. Its nearshore footprint for German-speaking markets spreads across a number of established locations such as Poland, Turkey, and Romania, and more recently Sarajevo in Bosnia and Herzegovina.

This addition significantly boosts Telus International’s delivery for DACH markets, complementing its centers in Bulgaria, Romania, and Ireland, and expanding its ~5.5k employees in Europe. Once finalized in Q1 2020, the deal will bring Telus International’s total revenues to ~$1.3bn.

The supply problem of German-speaking markets

Germany, Austria, and Switzerland are high-value CX services markets facing a challenge to source native speakers cost-effectively. At a full employment rate, around 3-4% in these countries, the onshore options for outsourcing companies are limited. Over recent years, site openings increased in the north and northeast Germany (e.g. Rostock, Stralsund) or closer to the country’s borders to capture a wider employee pool (e.g. Aachen). Pilots with work-at-home delivery are also underway, for example, by Webhelp.

Another solution has been to increasingly relocate native speakers to Mediterranean countries, offering one or two year contracts and the benefits of a lower cost of living, warmer weather, and better work-life balance. This model contributes to the multilingual capability in Barcelona, Lisbon, and increasingly Athens.

Lastly, vendors are entering new destinations such as BiH, Kosovo, Montenegro, North Macedonia, and Georgia, which can offer German language competency but at a smaller scale.    

Acquisitions to expand delivery scale in core geographies

In 2019, CX services vendors picked up opportunities for inorganic growth in core markets, often adding capacity with tuck-in deals or buying shares in new verticals. For example:

• In the U.S., TTEC bought FCR bringing in ~80 clients and new centers in Oregon and Montana
• In Ireland, Infosys BPM bought Eishtec
• In Germany, Transcom acquired TMS Connected! to grow in the energy sector and ASA Informationsdienste in the media space
• In France, Tessi added French CX services provider ADM Value for €110m
• In LATAM, Covisian acquired Avanza’s CX services business in Iberia and LATAM after the earlier acquisition of Grupo GSS in  the same regions
• In Spain, Konecta grew with retail sector specialist Sum Talk
• In Italy, Comdata Group invested in the addition of PayCare financial services provider.

All these acquisitions come on top of growing client demand for multinational scale and the need for solid multishore delivery while guaranteeing operational standards and consistent CX across geographies.

Acquisitions of diversified and value-added services

This year also continued the trend of service extension M&As in higher-value offerings. Major areas again were CX consulting, digital marketing, and UX design capabilities, including:

• transcosmos’ November addition of Tokyo social media marketing agency Interest Design
• Tech Mahindra’s BORN Group, which offers strategy consulting, content creation, and marketing production
• AlmavivA’s new UX/UI and digital services agency Wedoo.

Part of this vertical integration is also vendors bringing in-house CX automation technology and resources, most notably Webhelp’s purchase of Romanian RPA developer PitechPlus and Konecta’s purchase of the Brazilian Uranet.

For Telus International, CCC brings a different capability – experience and clients in content moderation and trust and safety services. The German Network Enforcement Act of 2017 and similar regulatory plans in Austria, France, and across Europe created a significant market for human moderators, trust and safety specialists, and community managers. Both Telus International and CCC support Facebook for the German market with several hundred German speakers onshore and nearshore. Now, the merged capacity will create scale and strengthen the company’s domain experience.

Consolidation and M&A opportunities in 2020

This deal will drive Telus International to the cusp of the largest global top 10 CX services providers by revenue. With last year’s Concentrix–Convergys, Teleperformance–Intelenet, Arvato–Saham Group, and Startek–Aegis M&As, the market consolidated sizably but still keeps its very long tail of regional and local players. This fragmentation does not benefit the industry. At the moment, it captures less than a third of the addressable market.

As a private company, Telus International benefited from the backing of Baring Private Equity Asia. With a number of PE ownership changes in 2019 for the likes of Webhelp, Konecta, and IGT, and the availability of investment funds, 2020 will see more similar-sized deals.

In the midterm, the increasing client requirements for integrated full-service offerings supported with strong consulting and design expertise, IP, multishore centers, and technology partnership networks will further differentiate the market leaders and will push out smaller and commodity type vendors outside the clients’ supply chain.