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Looking at Acquisition Activity in the CMS Market

After a quiet year of acquisitions in the contact center outsourcing market in 2013, 2014 activity so far has been more inline with what we’ve come to expect of this market in terms of the volume of acquisitions.

Most of the acquisitions so far this year have been to enhance, and in some case establish, geographic presence, for example:

  • Webhelp acquiring SNT Netherlands in February
  • TeleTech acquiring the Bulgaria based Sofica Group also in February
  • arvato acquiring five contact centers in Germany from Walter Services in April

Whereas what we have seen in the couple of acquisitions in 2013 and in a number of the acquisitions in 2012 was a definitive move to enter new verticals and enhance technological capabilities.

While the acquisitions noted above are essentially business as usual in within the CMS space, two other recent transactions are truly representative of the consolidation that is beginning to take place in this market.

Firstly we had IBM divesting its ~$1.2bn CMS business to Synnex Corp. in September last year for $505m. This bumped up Synnex Corp. to one of the top ten largest CMS BPO vendors by revenue at the time.

Then we had Convergys acquiring stream for $820m (an impressive 26.7 times expected 2013 EBIT) in January this year. This expanded Convergys’ geographic presence from being heavily weighted towards a U.S. client base, to a more balanced North America/EMEA split following the acquisition. This transaction propelled Convergys to become the second largest CMS BPO provider with revenues of ~$3bn. This deal had being in the pipeline for a number of years and represented a key milestone in the company’s multi-year turnaround that included the divestment of its Information Management business in 2012.

The big news as we move into the second half of 2014 is that the Essar Group is looking to sell off Aegis. Aegis is headquartered in Mumbai, India and operates 55 call centers in 13 countries with 55,000 personnel and 40,000 seat capacity. The company has a diverse portfolio with clients in the telecoms, high-tech, healthcare, BFSI, manufacturing, travel & tourism, and retail verticals. This potential transaction is a particularly interesting development as Aegis has recently closed the acquisition of Symphony BPO to expand its presence in Malaysia and has since increased capacity in the country from 1,000 to 1,600 seats. This move looks to confirm reports that the organization will look to retain its domestic APAC operations and divest its U.S. and offshore Philippines centers. Aegis’ domestic APAC operations account for ~45% of its revenues (~$360m). The Essar Group is reporting to be looking to raise ~$600m from the sale, approximately 136% of annual revenues.

Who might look to purchase Aegis?

There is a possibility that a private equity firm would pick them up, as happened with Aditya Birla Minacs (acquired by CX Partners and Capital Square Partners in January), and Atento (acquired by Bain Capital in December 2012).

What is more likely however is that a competing vendor will look to acquire the Indian headquartered firm. If we had to examine a few of the top CMS BPO providers:

With CY 2013 revenues of $1,264m, Sykes was one of the top 6 CMS BPO providers by revenue for the period. The companies EBIT of $53.5m (4.2% EBIT margin) for CY 2013 coupled with its $212m of net cash available could make it a likely candidate for this acquisition. Although following the acquisition of Alpine Access in July 2012 and its move to rationalize a portion of its bricks and mortar U.S. delivery, it is unlikely that Sykes would look to acquire Aegis’ sole bricks and mortar capabilities.

Sitel achieved CY 2013 revenues of $1.4bn although profitability is a key concern, the vendor is currently in the midst of a turnaround in order to address this (see also: Evolution of Outsourced Social Media Services) and is therefore not in a position to make an acquisition of this size.

Convergys is currently the second largest CMS BPO vendor by revenues although with its $820m acquisition of Stream this year an acquisition the size of Aegis is not likely to be on the cards.

Teleperformance achieved CY 2013 revenues of $3.2bn making it the largest CMS BPO vendors by revenue. The company achieved an EBIT of $265m (giving a margin of 8.1%), had a net cash position of ~$117m at the end of 2013 and also has access to further credit. The firm has also continued to reiterate its intention to acquire in 2014, something it has not done since January 2013 (TLS Contact). Of the top CMS BPO vendors Teleperformance is therefore the most able to take advantage of this opportunity and cement itself as the largest player in this market.

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