EGS is a portfolio company managed by One Equity Partners (OEP), a middle-market private equity firm. Post EGS acquisition, Alorica will employ over 91k people in 154 locations across 16 countries in five continents. Lee will be CEO and Chairman of the new organization, based in Irvine, California. He will also be the majority shareholder. The companies expect to complete the transaction by early Q3 2016. The purchase price is not being shared at this time but Alorica plans to release this information over the next few months.
Lee founded Alorica 16 years ago with $10k and a vision. Fast forward to 2015, and Alorica had beome a $1.2bn company with the West Corp. Agent Services acquisition. And with EGS, Alorica will be generating ~$2.3bn in global revenue, behind only Teleperformance and Convergys as a pure play CMS BPO provider. In CMS BPO, scale is critical; clients want fewer partners, for one. By acquiring EGS, Alorica also avoids becoming a consolidation target.
Beyond the increased scale:
Just over a year ago, Alorica doubled in size with the acquisition of West Corporation’s Agent Services. The integration has been smooth, and Alorica claims that it has not lost any of the clients it obtained from West. One of the lessons learned from that acquisition was the importance of not over burdening its operations, HR, technology, and communications teams with integration work. With the EGS acquisition, it will have personnel dedicated to the integration, supported by McKinsey consultants.
Alorica and EGS have a limited delivery overlap. The network IP will be Alorica branded. It took one year to integrate West Corporation’s Agent Services business and the same amount of time is anticipated for the EGS integration.
Client overlap is 10-12 clients, from the communications, retail, and technology sectors. Post-acquisition, Alorica will serve ~600 clients, supporting ~30 languages. It will employ 52k people in North America (including 6k work at home agents), 26.3k in the Philippines, and 11.8k in Latin America.
EGS is Alorica’s second key acquisition in two years. In integrating West, it has learned to manage business integration smoothly, handle significant growth, and retain clients. Far from being a consolidation target, Alorica is becoming a consolidator.
One year on from my chat with Andy Lee, it’s good to see a leader articulate a clear goal and successfully lead a team on the road to making it a reality.
Postcript: This deal was completed on June 30, 2016.
]]>The report also reveals how voice interactions are increasingly being deflected to non-voice channels, primarily webchat, by high tech organizations. Complex interactions tend to remain in the voice channel, though some high tech organizations have moved entirely to a digital, non-voice, customer care and technical support framework. High tech organizations are experiencing reductions in product returns as a result of utilizing video chat and online videos for product installation.
The report identifies the following shifts in channel usage for outsourced CMS in the high tech sector between now and 2020:
The scope of outsourced CMS activity in the high tech sector has moved beyond customer care and retention, technical support, and collections/credit management, with increased emphasis now on revenue generation through paid-for technical support, analyzing end-to-end processes to reduce product returns and truck rolls, and enhanced installation support.
The report shares a variety of case examples quantifying how CMS vendors have delivered the benefits sought by high tech organizations from outsourcing. It also includes details of the current and future shape of CMS in the high tech sector, outsourcing drivers, vendor delivery capabilities, channel usage, market size and growth, and critical success factors.
‘Targeting CMS in High Tech’ is now available, along with a NEAT vendor assessment tool which enables sourcing managers to assess and compare the performance of vendors offering CMS services to high tech organizations. For more information, please contact Guy Saunders at [email protected]. You can also view a brief video with highlights from the report here.
]]>Founded in 1993 and headquartered in Jeffersonville, IN, Accent has 2.3k employees and delivers services from six locations in the U.S. and Jamaica. It has 18 clients in the telecoms, technology, retail, financial services, and consumer products sectors. Current annual revenue run rate is ~$67m, hence the $16m purchase price indicates that it is not a profitable company.
The acquisition is expected to close by the end of May, and STARTEK expects the majority of the integration to be completed by year end 2015. With the addition of Accent, STARTEK will have ~50 clients and ~14k employees operating in five countries.
This is an important acquisition for STARTEK. Not only will it broaden its client base and sector mix, it will reduce its heavy dependence on the telecoms sector, which has accounted for ~80% of total revenues, and where it is exposed to vendor consolidation and reduced contact center volumes in the industry. Just three clients (T-Mobile USA, AT&T and Comcast) account for nearly 60% of global revenues, and in Q1 2015 STARTEK was impacted by a 30% revenue reduction from AT&T. STARTEK has been close to bankruptcy several times in the past four years, and has had to close several of its call centers, most recently in Oklahoma and Costa Rica.
The acquisition will boost global revenues by around 26%, and enhance STARTEK’s omni-channel customer engagement offerings. Accent’s customer engagement agency model will complement and enhance the analytics capabilities gained with the acquisition of Ideal Dialogue in 2013.
STARTEK has clearly been focused on diversifying its client base, having signed $10.5m of new business in Q1 2015 across clients in healthcare, financial services, and consumer products. However, it is the acquisition of Accent that will be the key determinant of STARTEK’s future success as it looks to shake off its dependence on the telecoms sector.
]]>In total, 24 languages are supported, and the center is able to draw upon London’s rich cultural mix to recruit students and recent college graduates with broad language capabilities.
In the government sector, HGS runs a multi-channel helpline for the U.K. Visas & Immigration department, supporting people in 222 countries in 21 languages through voice, e-mail, webchat, and self-service. It provides customer care as well as market insight and reporting for this client.
In the automotive sector, HGS agents utilize video chat in addition to traditional channel support such as voice, e-mail, webchat, and social media, to provide sales and road-side assistance to the European and Middle Eastern divisions of a luxury automotive client. HGS has found that customers consider webchat to be impersonal, and is planning to extend the use of video chat beyond the client’s U.K. customers to Europe over the next year.
The Chiswick center supports several bespoke client programs that go beyond traditional customer care. For example, HGS is conducting on-site product testing as part of complaint handling for a global client in the CPG sector. In a recent instance, HGS tested one of the client’s consumer products (bottled bleach) in order to determine whether the product cap was defective as part of a customer complaint; on this occasion it was able to establish that the product was not defective, though tests on other similar products have necessitated changes to product packaging in the past. HGS is at liberty to recommend product changes, replace damaged items for the client’s customers where warranted, and send the customer complimentary products based on inconvenience caused.
HGS is supporting Danone U.K., a provider of early life nutrition, water, and fresh dairy products, with customer care by providing nutrition and health information to new parents. The care is provided through voice, email, and webchat, with plans to provide video chat support within a year. HGS supports this client through a 30-strong agent team which includes five qualified midwives and nutritionists. It also has a group of agents with experience caring for children, handling complaints, and providing out-of-hours support for the early life nutrition line.
In the healthcare sector, HGS is supporting a healthcare provider, Virgin Health, that offers parents the ability to have their babies’ stem cells collected at birth and stored, preserving them for research and potential treatment of serious illnesses. HGS is involved in the entire process, from initial inquiry to stem cell collection to the final checks which take place six months after the birth of the child. HGS coordinates the work of medical professionals, arranges the distribution of the collection kits to hospitals, and organizes the delivery of collected samples to the storage unit. This program has multi-lingual capabilities as it supports customers in the U.K and the Middle East.
The HGS Chiswick center is a good example of a vendor effectively leveraging the language diversity and high education standards of a location to offer strong multi-language, multi-country, and multi-channel support, and to develop bespoke support programs that add value to the customer relationship.
]]>Growth in the English-speaking market & Asia-Pacific SBU was led by new contracts in North America, and China where Teleperformance has won business to support multi-nationals’ expansion in China, also domestic and locally based foreign government agencies in China. Teleperformance has been rapidly expanding operations in China, including through its acquisition of TLS Contact in January last year.
Ibero-LATAM was hard hit by negative exchange rates, turning moderate constant currency growth to a 6.4% negative growth as reported. The Brazilian real lost 20% of its value against the Euro while the Argentine Peso lost a staggering 40% compared with Q1 2013. Colombia, Mexico and Portugal reported the highest growth while the Brazilian business continues to experience reducing volumes, a reflection of Brazil’s economically challenging periods in Q1 and Q3 last year. Brazil is an important market to Teleperformance: all the delivery is domestic, and it has ~13,000 agents in the country, its fourth largest country operation, with nearly 10% of the global agent headcount. The Brazilian economy is once again growing relatively strongly this year, 0.7% in Q1 2014 and expected growth of 1.62% in Q2 2014. However, much of this growth is due to the temporary GDP injection from the football World Cup starting in June; whether this will transfer into growth in the domestic CMS BPO market, other than temporary contract expansions during the tournament, remains to be seen.
Within the Continental Europe & MEA SBU, there is a return to growth in several Continental European countries including Italy, and three countries - the Netherlands, Greece and Turkey - which have benefited from a refresh of the sales force. The telecoms vertical in France continues to be a challenging market.
Teleperformance has reiterated its desire to acquire during 2014. It is looking to enhance its higher margin capabilities in developed regions such as the U.K. and U.S, probably including capabilities in automated services and e-commerce, with a possible foray into the paid-for tech support market.
Teleperformance’s 2014 EBIT guidance of between 9.5% and 9.7% is a major improvement from the 8.1% margin achieved in 2013. The firm is looking to exit some unprofitable contracts and focus on higher margin activities although recent contract activity does not indicate a big take up by clients as yet. Acquisitions undertaken from this point on in the year would be highly unlikely to dramatically shift margins in the time available. Topline like-for-like guidance for 2014 is more conservative then the company’s margin aspirations with growth of between 5% and 7% expected for the full year; this is a softening of what the company has achieved since Q1 2012 and indicates a shift towards margin expansions over out and out topline growth.
]]>The decline in profits was anticipated with a warning given by the company to this effect only a few weeks ago. In this period, Serco reported a net exceptional charge of £90.5m, reflecting principally the Electronic Monitoring settlement and one-off costs, together with an estimated £21.0m of other indirect costs in relation to the UK Government reviews.
As forecast by the company in its H1 announcements, growth slowed down, in H2 2013. In fact it halved.
Contract wins in H2 2013 included an ITO contract extension for the EU and an FM contract with the Canadian defense. But BPO contract wins completely dried up in H2 2013. This perhaps reflects the problems of Serco’s Global Services division which was most impacted by the electronic monitoring debacle, reporting -350bps decline in operating margin.
Serco admits that clients did not want to talk to it until the issues had been resolved. New contracts have started to come in once again (such as the Lincolnshire Council contract) since Serco settled the matter with the U.K. government.
Apart from the MoJ expenses, divisional margin came under pressure from upfront expenditure on existing contracts. These included:
It has not been an easy year for Serco in some of its international businesses either. In Australia, a change of government and policy has resulted in revenue attrition in its contract with the Department of Immigration and Citizenship for which Serco runs a number of detention centers.
In America, the outlook remains uncertain due to Federal funding challenges around programmes and contracts, but Serco has won a number of new contracts in the region, including the $1.25bn 5-year federal Eligibility Support (ES) contract by the United States Department of Health and Human Services' Centers for Medicare and Medicaid Services (CMS) but this is likely to be at relatively low margin.
Serco has done well to achieve topline growth despite its annus horribilis. 2014 will be a year of repair and rebuild for Serco. The new CEO, Rupert Soames, and a number of new non-executive board appointees, are likely to go to start with a major review of the business. Serco's strategy of diversification should help with this activity, providing it with a broad set of options for rebuilding the business.
]]>Serco has updated its guidance for 2013 and 2014 following its clearance by the U.K. government to bid for new contracts. Serco expects a mid-single digit percentage organic decline on 2013 revenue due to:
Adjusted operating margin is anticipated to decline by ~50 to 100 basis points on 2013 due to greater than previously envisaged margin reduction resulting from the revenue impacts described above, and the incremental costs of the agreed corporate renewal programme.
Serco's ongoing portfolio management resulted in further non-core disposals in 2013. These businesses contributed £43m of revenue and £7m of profit up to the point of disposal last year and will not contribute to revenue and profits in 2014.
In 2014, Serco expects:
Market consensus for 2014 Adjusted operating profit is currently £277m but Serco anticipates a result that could be 10-20% lower than this for ongoing activities, on a constant currency basis.
- See more at: http://research.nelson-hall.com/sourcing-expertise/government-bpo/?avpage-views=article&id=201919&fv=2#sthash.0FvrNKMr.dpufThe profit warning came on the same day that Serco announced clearance by the U.K. government to bid for new contracts. Serco announced that it expects a mid-single digit percentage organic decline on 2013 revenue due to a number of factros including:
Adjusted operating margin is anticipated to decline by ~50 to 100 basis points on 2012 due to greater than previously envisaged margin reduction resulting from the revenue impacts described above, and the incremental costs of the agreed corporate renewal program.
In 2014, Serco expects continuing additional costs of up to £40m related to the corporate renewal programme, external advisers and further restructuring.
Market consensus for 2014 adjusted operating profit is currently £277m but Serco anticipates a result that could be 10-20% lower than this for ongoing activities, on a constant currency basis.
Serco's financial woes have been compounded by a change of Government in Australia, its second largest market. Tony Abbott, the new prime minister, has pledged to stop the flow of boat people into the country by shifting the work to overseas centers. This has resulted in a decline in volumes in the detention centers that Serco manages under contract for the Department of Immigration and Citizenship.
On another front, in January, Serco's health provision in Suffolk was criticized after a four-month NHS review found services were being provided safely but improvements were needed. The areas for improvement were reported to include staff morale, recruitment and retention, communication with GPs and commissioners, equipment stores and procedures at the Ipswich care co-ordination centre.
Serco has been implementing a major corporate renewal plan as part of its negotiations with the Cabinet Office. As well as extensive management changes, and a renewed and refreshed code of conduct and governance, Serco has committed to creating a separate division for its U.K. Central Government work to increase focus and openness for Government as a collective customer.
Other key measures include:
Much of the growth from this region is fuelled by demand from the domestic Brazilian market, as well as the continued high uptake of near shore support to the U.S. from the likes of Argentina, Mexico, Colombia and to a lesser degree Peru. Currently there is a degree of domestic support from Latin American countries outside Brazil although this is vastly overshadowed by support to the U.S. Teleperformance alone has opened six centers in Latin America during 2013, expanding current capabilities in Brazil, Colombia (2), Mexico and the Dominican Republic. Other major players such as Transcom, Atento and Convergys have also opened new centers in the region over in 2013.
How does support to the U.S. from Latin America differ from offshore U.S. support from the Philippines? The Latin American market is unable to compete with the Philippines for price but where Latin America does come up trumps is in Hispanic support, the ease of management of the region, due to close time zone matching and shorter flights, and the ability of agents to engage in a non-scripted environment.
The vast majority of support to the U.S. from Latin America is for customer care services distantly followed by sales and then lastly technical support.
Recent contract activity has highlighted the push for higher complexity, multi-channel contracts in support of the domestic Brazilian market and the near shore Hispanic U.S. market. In addition to the opening of further centers in the region, Teleperformance has established a social media center in Brazil. Aegis is another vendor with established social media presence in Latin America; although current uptake of social media outsourcing in the domestic Latin American is limited, NelsonHall does expect growth in this sector approaching that of EMEA and North America.
Most nearshoring to the U.S. market has been in support of the telecoms sector, Teleperformance has invested $22m in the construction of the two centers in Colombia. These centers are providing multi-channel customer management services to a large U.S. telco.
According to NelsonHall’s recent CMS market analysis, the top three major players in the Latin American CMS BPO sector, and market share are Atento (24%) then Teleperformance (11%), distantly followed by Teletech (2%).
Atento continues to be the dominant player in Latin America with a 40% market share in Brazil. Atento currently employs ~126,000 agents across Latin America with ~84,000 of these providing domestic support to the Brazilian market. Atento is currently providing a small degree of offshore support to Brazil out of Portugal representing a clear divergence from the standard flow of services between the two nations.
Teleperformance’s continued investment in the region is indicative of what can be expected in terms of growth and level of service delivery from Latin America. Investments have focused on the development of higher-end support capabilities such as social media, multi-channel interaction as well as R&D facilities.
As the region continues to mature, nearshored support to the U.S. and domestic support in Brazil will begin to replicate that of Europe with the emphasis placed on higher end delivery models increasingly driven by the need for improved customer experience as opposed to just cost reduction. The domestic market in the region outside of Brazil will continue to be driven by more commodity based services in the near term.
With Brazil’s growing population (currently ~199m) and increasing purchasing power (GNI per capita grew by 8.7% between 2011 and 2012) the domestic Brazilian CMS BPO market should continue to grow at a faster rate than the rest of Latin America.
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