This week, Concentrix announced its agreement to acquire PK, a U.S. CX design engineering firm, for ~$1.6bn from PE Carlyle Group. PK will add significant scale and IT capabilities in CX transformation and will enhance Concentrix’s play in the fast-growing intersection of cloud technology, automation and analytics assets, and digital customer journeys.

Digital and human assets at scale

PK has ~5k software engineers, mobile developers, data engineers and modelers, solution architects, functionality consultants, business analysts, product managers and industry specialists, UX/UI designers, and change managers. It is headquartered in Beaverton, Oregon, with a presence on the West Coast and the Midwest, and offshore delivery centers in India, Mexico, and Argentina.

The scale of technical and consulting resources considerably increases Concentrix’s existing Tigerspike consulting practice and diversifies its development hubs. A strong benefit is PK’s onshore U.S. presence, which is ~40% of the total workforce, boosting development capacity in a challenging labor market.

PK also brings a significant proprietary tech stack with ~200 IP assets, including in digital marketing, experience platforms, omnichannel, big data, cloud, analytics, and intelligent automation. It has partnerships with ~20 technology brands, including Adobe, Google, Salesforce, Microsoft, AWS, and Sitecore. 

This broad range of digital assets can address essential CX services clients’ needs for function-specific technology across all customer journey stages. For organizations, outsourced CX services are increasingly part of a broader digital transformation with accelerators in intelligent automation, cloud migration, digital channel enablement, employee experience, and enterprise modernization. For PK, the major business areas are strategy, design, and cloud engineering services at 21% of revenues, followed by marketing and CRM platforms at 18%, and data analytics and automation at ~15% each. The acquisition thus enables Concentrix to evolve from a consulting to a developer role in their CX transformation engagements; for example, as the CEO Chris Caldwell pointed out, to build data lakes for big data services and create back-end system integrations in automation.

Added revenue, higher margin

The deal is accretive to Concentrix, adding an expected $530m in revenues for the first 12 months of the transaction and ~$85m of adjusted EBITDA. The expected year-over-year growth for PK is above 20% for 2022, consistent with its pre-pandemic expansion rate. The double-digit growth of PK is boosted by the company’s focus on digital customer experience in areas such as new customer acquisition, speed to market, engagement, and retention. These are focus areas for enterprise clients as they navigate changing customer profiles and behaviors while facing unprecedented competition.

Concentrix looks to utilize the newly added technology and consulting capabilities both for further margin expansion and cross-sell opportunities to PK’s Fortune 250 client base. Two target verticals are technology and healthcare.

Concentrix’s plans to internationalize PK’s capabilities outside North America are likely to be mid-term and will require investments in new locations and synergies with existing CoE and innovation centers, especially Tigerspike’s.

Digital services – new growth engine for CXS players

Gradually, CX technology, design, and consulting levers become the foundation for all outsourced CX services programs. The overall CX services market is responding similarly to Concentrix by building and acquiring these capabilities more often. Prominent recent examples include:

• TTEC acquisition of Genesys and Microsoft integrator and technology developer Avtex
• TELUS International acquisitions of Lionbridge AI and later Playment for data training services
• Teleperformance acquisition of U.S. BPS provider Health Advocate
• Tech Mahindra acquisition of CX consulting firm Eventus Solutions.

This trend also drives consolidation at the top of the industry, exemplified by the Sitel>SYKES deal and the search for additional funding from the financial markets and investors (e.g., Majorel and TDCX IPOs). All these moves steadily stratify the leaders from the rest of the CX services providers.

Concentrix in 2022

PK is the first major expansion for Concentrix since its split from SYNNEX and highlights a clear drive towards value-add services beyond pure-play CX. The transaction is expected to close in Q1 2022 (ending Feb 28^th), bringing the company over $6bn in annual revenues. It will also put Concentrix in competition with technology providers such as Globant, EPAM, Endava, Thoughtworks and IT and BPS providers such as TCS, Wipro, Cognizant, Genpact, and Accenture. In these groups, however, market positioning and a consultative sales approach become even more important. A more structural challenge is when enterprises separate their technology and BPS suppliers to limit overexposure.

Among the significant opportunities for Concentrix from the deal is to cross-sell its existing transformation capabilities, for example, in VOC and customer feedback management and marketing support services. At this stage, Concentrix’s plans for 2022 include investments in boosting its sales operations.