Germany’s fiscal success story presents an interesting value proposition for the local customer management services (CMS) BPO market. Real GDP in Germany grew by 1.5% in 2014 and current forecasts indicate that, driven by a strong labor force, high consumption and favorable energy prices, Germany should be able to maintain this level of growth through 2015 and accelerate to around the 2.0% mark in 2016.

Growth in GDP is, to a large extent, driven by increasing private consumption, which alone will look to outstrip real GDP growth in 2015. Growth in private consumption indicates the need for increased customer facing capability of organizations, hence potentially a rise in the need for outsourced CMS.

There has been over the last 14 months a flurry of acquisitive activity highlighting the potential both vendors and PE firms are seeing in this market. Examples include:

• Xerox’s acquisition of Invoco in December 2013 (1,800 FTEs, 10 centers)
• arvato’s acquisition of Walter Service’s German operations in April 2014  (1,100 FTEs, 5 centers)
• Livia Group’s acquisition of SNT Deutschland
• Capita's focus on the region. The firm has made two contact center acquisitions in Germany over the last eight months:
  • In July last year tricontes, a Munich based telemargeting vendor with a retail, telecoms, utilities and insurance focus
  • Last month, customer management consultancy Scholand and Beiling
  • And this month, avocis for £210m. avocis has ~5,000 seats in Germany, where it is one of the largest CMS vendors, accounts for 53% of total revenue, and Switzerland, which is where its foundations lie, and where it claims to be market leader in . avocis was created as an umbrella brand in 2011 from the amalgamation of six companies. It services clients in the telecoms/IT, utilities, financial services, and healthcare sectors
  • In its first acquisition since Andy Parker started as CEO, Capita is paying 1x 2014 revenue for avocis, which is a growing business: 2014 revenues were up 21%, and its EBITDA margin was 14.2%, up from 11.4% in 2013. Capita expects avocis to achieve its target for a post-tax ROC of 15% within two years. Significant in being Capita’s largest acquisition to date, avocis is s one of the largest CMS BPO vendors in Germany, It is a capacity move in the region: avocis' vertical focus aligns with that of tricontes. Together with tricontes, Capita will have a significant presence in the German commercial sector CMS BPO market. That is a phrase that one (German, commercial sector CMS) would not have expected to say of Capita even four years ago! This move into Germany for CMS BPO has been an extremely interesting strategic decision by Capita, who outside its specialist activities in financial services and insurance, is known as a U.K. public sector specialist.

With a large addressable market that is showing increased interest in outsourcing, positive consumer consumption, a stable economic & political environment and the above mentioned buy-ins from vendors and PE firms. The region has historically been services by small to mid-sized vendors. With companies such as Capita now building scale, the vendor landscape is now changing, Expect to see some large CMS BPO deals in the region over the next few years, led by the telecoms, banking and retail sectors.