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Majorel and Sitel Group to Merge, Scaling CX Transformation

 

On June 20, Majorel and Sitel Group announced a planned merger, expected to close in Q4 2022 or Q1 2023. The combined company will have an estimated $6.4bn in revenues for 2022, placing it in the Top 3 global CX players. There, it will compete with Concentrix (estimated revenues of ~$6.4bn for 2022) and Teleperformance (estimated revenues of ~$8.2bn for 2022).

While the deal is still under regulatory approval, I look at the rationale, expected benefits for the companies, and the overall market effect.

A new CX services behemoth

The yet-unnamed combined organization will have ~240k employees across 55 countries, supporting ~1k clients in ~70 languages. The new group will be headquartered in Luxembourg, led by Sitel Group's CEO Laurent Uberti and Majorel's CEO Thomas Mackenbrock as Chief Investment Officer & CEO EMEA. The future group will have a new two-tier governance structure. It will be listed on Euronext Amsterdam with plans to increase the free float shares to at least 20%.

The companies expect the merger to result in an estimated 16-17% EBITDA margin for 2022, excluding expected net synergies of ~€100m run-rate p.a.

Of the two, Sitel Group has a more diversified client base with shares in the public sector, healthcare, and utilities. The combined BPS provider will lead in financial services, banking, and "global internet" brands.

Track record of mergers and acquisitions

Both companies have experience in large-scale integrations. The announcement comes one year after Sitel Group's move to acquire SYKES. According to Sitel Group's management, SYKES's $2.2bn integration in August 2021 is now complete with synergy delivery of a $90m run-rate, of which $68m will be achieved in 2022 and $11m in 2021.

Majorel was created in 2019 from the merger of Arvato CRM, and Morocco's Saham Group, and the company continued to make targeted acquisitions, for example, in the French BFS sectors and in Turkey's expanding domestic and international delivery.  

Enhanced transformation capabilities and delivery reach

Scale. The added scale and delivery reach is an obvious benefit for multinational clients who are in a accelerated drive to diversify their delivery networks to address domestic talent shortages, onshore labor cost inflation, and BCP requirements. Sitel Group adds ~165k employees, 24 multilingual hubs, and a fast-expanding network of MAXhubs hybrid work locations in core destinations such as France, Greece, and Colombia. Majorel contributes ~75k people in 41 countries, including a strong presence in Southeast Europe, the Middle East, and growing presence in Africa (such as Ghana). In EMEA in particular, the new entity will have ~120k people. Other complementary delivery geographies are:

  • Sitel Group's footprint in LATAM domestic markets and offshore delivery
  • Sitel Group Australia and New Zealand
  • The combined China market share, where Majorel had €98m revenues in 2021.

Automation and ML. Both companies bring a portfolio of CX technology assets and expertise with highlights in automation and ML, such as Majorel's RPA factory in Dublin and Sitel Group's dedicated in-house automation integrator and development resources in the U.S. and U.K., part of its EXP+ platform. Such automation capabilities are now table stakes in the CX services market, where clients expect subprocess level automation expertise and industry-specific applications and virtual assistants to achieve effective omnichannel management, enhance live agents' work, and streamline back-office activities beyond simple, dumb bots.

Specialized services. The two companies have built and acquired several specialized services to complement CX transformation. Some of the most notable ones include:

  • Majorel's bank account portability offerings, platform, and clients in German-speaking markets and France
  • Sitel Group's learning practice with tools, mobile app, and clients in China
  • Majorel's sizable trust and safety and content moderation practice
  • Sitel Group's self-service content development capability
  • Majorel's dedicated startup accelerator.

Consulting. A key ingredient for all CX technology interventions and the adoption of specialized services is the vendors' CX consulting resources. Majorel and Sitel Group have been building up their consulting practices, and the future combined organization will have a strengthened bench in the U.S. and continental Europe. Once the transaction is complete, it will be interesting to see the development of the new entity's client-facing and internal innovation approach, building on existing capabilities such as Sitel MAX.

United Majorel-Sitel Group pressures CX competition

The acceleration of large-scale CX market M&A activity has significant internal and external drivers. The internal factors for Majorel and Sitel Group include:

  • Stronger positioning by a factor in core markets
  • Access to specialized CX capabilities which are becoming rarer as standalone companies on the market
  • The combination of sought-after talent, from frontline staff to CX consultants, development engineers, and experienced industry managers.

On the other hand, the external drivers have a self-fulfilling logic, where the future united Majorel-Sitel Group operates in competition with (among others): the combined Konecta-Comdata, the highly acquisitive Webhelp, diversified Concentrix (with the PK acquisition), and Teleperformance, who are actively pursuing an IT services play.

For the remaining players in the range of $500m to $1.5bn annual revenues or the ones limited to a single continental market, the challenge is to match the investment purse in resources and emerging CX technology (e.g., machine translation). They need to maintain their growth trajectory while the leading pack is stepping up the pace. This trend is a blueprint for more major news in CX services in the next few months.

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