Last week Aegis Global and StarTek announced the creation of a combined company. The merger will see Aegis majority owner PE Capital Square Partners swap shares with the NYSE listed StarTek, to reach a ~55% stake in the merged company. The deal is expected to close by Q3 2018. Here I look at the implications of the merger.

Return to the U.S. for Aegis

For Aegis, the merger follows its sale from Essar to Capital Square Partners in November last year. It also marks the return to the U.S. market, which the company mostly exited in 2014 with the sale of its U.S., Philippines, and Cost Rican operations to Teleperformance.

Aegis kept its core business in India and Southeast Asia, as well as its client and delivery presence in the U.K., Australia, South Africa, Saudi Arabia, Argentina, and Peru, with the latter two countries mainly supporting the LATAM markets. The addition of the Philippines capacity will provide alternative APAC language delivery to Aegis’ multilingual hub in Malaysia and an offshore location for Australia. Today, the provider has ~40k employees in nine countries and ~$388m in revenues.

Global expansion and new verticals for StarTek

For StarTek, the deal expands the business internationally to APAC, U.K., Middle East and LATAM. Its operations in the Philippines, Jamaica, and Honduras support the U.S. market, representing ~42% of the business.

Over the last three years, StarTek has made significant efforts to return to profitability (posting a $1.3m net loss for 2017) and to diversify its client base, which was top-heavy in the telecoms sector. Three of the four leading U.S. telecoms firms form over half of its $293m revenue. It was somewhat successful in this diversification, particularly in healthcare, but the Aegis merger will add new clients and domain capabilities in BFSI, travel and hospitality, automotive, and public sectors. 

Focus on CX technology and multinational clients

Following the transaction, the top three clients of the combined company will represent less than 30% of the total revenue. Telecoms will remain the strongest vertical for the new entity with sizable clients in the U.S., India, Middle East, and Africa. The deal will also enable further penetration of Aegis’ flagship digital channels engagement and analytics platform AegisLISA and increase investments in cloud technology, analytics, and automation. For example, in U.S. healthcare, where StarTek provides receivables management, nurse triage, enrollment, pharma and medical device management, patient customer care and scheduling, Aegis can contribute document digitization and BPM orchestration capabilities.

Without any client or delivery overlap, the merger will boost cross-sell prospects and expand the global multilingual delivery network to a total of ~50k employees in 60 delivery centers in 12 countries. Focusing on multinational clients in telecoms, BFSI, travel, and e-commerce, the new company can offer scale across markets. A significant opportunity is in global e-commerce and retail, where StarTek issued warrants in January for its existing client Amazon to acquire an almost 10% stake (post shares issued after Aegis-StarTek merger), with full vesting tied to future cumulative revenues to StarTek from Amazon of at least $600m over eight years.

While the new management structure, branding, and operational changes have yet to be announced, the deal is expected to realize over $30m annual benefit to EBITDA from revenue and cost synergies by 2020. It will also mark the continued efforts of providers to adapt to an increasingly digital and value-add CX services market.