By Vicki Jenkins and Mike Cook

A year ago Convergys acquired fellow contact center vendor Stream, making it the second largest CMS BPS provider by revenue behind Teleperformance. NelsonHall CMS analysts Vicki Jenkins and Mike Cook caught up with key members of Convergys’ leadership team on the anniversary of the acquisition to discuss how the new organization is shaping up.

The importance of cultural alignment

Convergys learned about the importance of cultural alignment through its $335m acquisition of Intervoice in 2008 to strengthen its IVR capabilities. Convergys was a conservative, Cincinnati, OH-based company focused primarily on BPO, while Intervoice was a technology company based in Richardson, Texas and a far less conservative company. Convergys put those cultural lessons into practice with its $820m Stream acquisition in March 2014. Stream was a far better cultural fit for Convergys, being focused on BPO and also based in the Midwest, in Eagan, Minnesota. From a capacity and client perspective, Convergys had little overlap with Stream.

While Convergys has not lost any clients due to the acquisition, there was understandably a degree of hesitancy from some clients due to service continuity concerns. One such client was a high-tech firm that was previously with Stream. The client was initially planning on reducing headcount at the time of the acquisition, but following the implementation of analytic enhancements leveraged from Convergys, the client has since increased capacity and is now set to have Convergys as the sole vendor of a new strategic offering.

Convergys traditionally had a robust analytics offering with ~400 consultants, and these services are now being rolled out to previous Stream clients.  Examples of analytic services include VOC and customer journey mapping.

Another factor that calmed the concerns of previous Stream clients following the acquisition was the joint company’s more stable balance sheet, a concern that had stunted expansions with existing clients.

Impact of the acquisition: clients, delivery and growth

The Stream acquisition has created a broader global client and delivery footprint for Convergys, bringing opportunities for clients. An example has been a U.S. telecommunications client which has now begun using nearshore delivery from the Convergys (formerly Stream) location in the Dominican Republic. Convergys sees the opportunity to more than triple the work it is providing for this client.

However, while Convergys is benefitting from a larger nearshore footprint in Central America, it is also facing some problems in the region; for example, the technological infrastructure of Honduras is not to the same standard as Costa Rica and the U.S. Convergys currently has two clients in need of telecommunications infrastructure updates in Honduras, and is in the final steps of solving these issues.   

As a result of the Stream acquisition, Convergys has seen growth in EMEA and LATAM.  Prior to the acquisition, Convergys had 1% of its headcount in EMEA, and this has now increased to 10%. Convergys was able to speed up its plans for LATAM expansion, with headcount in the region increasing from 3% to 7% post-acquisition. Convergys had a small presence in the U.K., but shortly after the acquisition it opened a new center in Derry/Londonderry, Northern Ireland and the Stream operations team was instrumental in launching the new site. 

The two companies have been able to leverage strengths to retain clients and secure new business. An EMEA-based telecommunications client was concerned about Stream’s financial position as it progressed towards a new deal, but the improved financial stability brought about by Stream being acquired by Convergys helped to secure the deal. In addition, an online financial services and an e-commerce retail client, both legacy Convergys clients, expanded in EMEA with the assistance of Stream. And a new EMEA-based telecommunications client is in the process of launching with Convergys to provide customer care support. 

Convergys has grown with 16 of its top 20 clients during this past year. It has specifically grown with two U.S.-based high technology clients, and it plans to leverage this growth to obtain new business.

Still work to do, but the signs are good

So, does Convergys have further work to do? Of course. They have plans for the second year focused on system integration, market positioning and branding, particularly in EMEA. The combined organization had numerous payroll systems prior to the acquisition. During 2014, it has been working to integrate systems and plans to complete this integration in Q4 2015. 

Convergys sees EMEA as an opportunity for growth and aims to become the largest CMS vendor in EMEA. While it looks for additional capacity in EMEA, M&A is possible. External marketing and branding is a focus for Convergys in the region, and it is starting to gain some traction. A U.S.-based media client that came from the Stream portfolio has conducted a pilot and launch in the U.K. by utilizing the Convergys analytics offerings. 

Convergys aims to grow all of its sectors in EMEA, with a particular focus on financial services. It is also looking to further grow its high technology sector business, even though it has already doubled as a result of the Stream acquisition.

And finally, how has Convergys performed financially in the year since the Stream acquisition?

Revenues for the year were up 40%, although organic growth was negative 1%, indicating that Convergys has seen contractions and/or client losses from its own legacy portfolio. However, from a profitability stand point, the company has performed  well, with adjusted EBITDA margin up 30 bps during the period to 12.5%.

All of which points to a successful first year for the combined organization, and though some integration work remains to be done, the signs are good for 2015 and beyond.