• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
An Eye on M&A Potential Amongst Outsourcing Providers
 

An Eye on M&A Potential Amongst Outsourcing Providers

on

  • 636 views

There is increased chatter around potential M&A activity as Service Providers look for new ways to grow. Read more on this research at: ...

There is increased chatter around potential M&A activity as Service Providers look for new ways to grow. Read more on this research at: https://portal.isg-one.com/briefs/Pages/Is%20The%20Outsourcing%20Industry%20Ripe%20For%20MA%20Activity.aspx

Statistics

Views

Total Views
636
Views on SlideShare
554
Embed Views
82

Actions

Likes
0
Downloads
0
Comments
0

1 Embed 82

https://portal.isg-one.com 82

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment
  • Such external pressures are adding to the competitive tensions within the Indian-heritage Service Provider industry, which we touched upon on our call last quarter. In our Special Topic this quarter, we are going to extend that discussion and take a view on the future provider landscape.
  • The industry has now had three straight quarters with sluggish bookings activity (based on subpar Y/Y measures), and SPs now need to be more creative as they look to hit growth targets. As an industry observer, we keep our ears open to market chatter, and we are starting to hear a lot of talk about potential takeover activity. We noticed something similar a couple of years ago in the Chinese outsourcing industry, and can see now that half of the top-10 industry leaders we identified then have disappeared. Some have gone through acquisition by other providers; some have gone through acquisition by private equity houses; others have simply vanished following accounting scandals and other such events. These phases of consolidation have always been part of the market dynamic. For example, when we back-test the competitor landscape, we notice that 30-40% of the set of leading providers will change over a 10-year period. Simply put, 10 years from now, we can expect six to eight of the current top 20 providers to no longer exist in their current form. They will be acquired or, in some cases, exit from the market.
  • So how can one identify those providers most susceptible to acquisition? From our unique perspective, we took a look at the leading providers from the past 15 years that are no longer with us and examined them from a number of aspects, including revenue growth and bookings growth. One thing we spotted was evidence for a correlation between New Scope bookings growth and the likelihood of a firm being taken off the market. Note that we don’t mean overall bookings growth here, just the portion of growth due to winning new logos or significant expansions in current clients. For example, New Scope bookings seem to decline sharply – by around 25% – during the two years leading up to the announcement of the acquisition. As food for thought, we observe that almost half of the current Top 15 providers in the market show a decline in New Scope bookings over the prior two-year period.So, this analysis – together with our more general experience in this market – leads us to the conclusion that the industry is ripe for M&A activity. Of course, there are always contrary reasons why mergers between large companies don’t make sense. After a certain point, for example, increasing scale often brings administrative burdens rather than benefits. Yet as we all know, the fact that large corporate takeovers are more often than not destructive of shareholder value does not prevent them happening. And in this case we can see a number of benefits to market consolidation over and above the need for growth. Mergers might help providers respond to proposed U.S. visa reform challenges, for example, by addressing some of the requirements to have a certain portion of employees onshore. They might be a way of kick-starting BPO growth, particularly for specific capability plays. They also might be a sensible way of managing risk, through reducing the dependency on certain clients, particularly in the Financial Services and Health Care sectors. We’ve been doing some analysis of overlapping client bases to investigate this possibility. We’ll be continuing to watch this market over the next few quarters, and expect to be returning to this topic in future calls.Now I’ll turn the call back over to John to provide some concluding remarks.

An Eye on M&A Potential Amongst Outsourcing Providers An Eye on M&A Potential Amongst Outsourcing Providers Presentation Transcript

  • © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 1 Impact of Expected Consolidation Why all this talk of Mergers and Acquisitions? We are hearing increased chatter around potential M&A activity as Service Providers look for new ways to grow. We’ve Seen It Before  If history holds, 30 – 40% of the current Top- 20 providers may exit the market. 50% Five of the Top-10 Chinese domestic providers we identified just two years ago are no longer active in the market in their prior form.
  • © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 2 Why Acquire ?  Respond to potential U.S. visa reform  Look to kick-start BPO growth, particularly for specific capability plays  Manage risk through reducing the dependency on flagship clients, particularly in Financial Services and Healthcare Examining the Characteristic of Potential M&A Candidates ISG has a unique perspective, informed by our data and market activity, on what might make a service provider a potential target for M&A activity. Who are the Acquisition Candidates ? 2 Years Prior to Acquisition Year of Acquisition We have spotted historical evidence of a correlation between negative New Scope bookings growth, and the likelihood of a firm being taken off the market. New Logo Bookings of Acquired Providers
  • www.isg-one.com Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. knowledge powering results®