The suspension of M&A activity in the global customer care sector seen during the unpredictability of the pandemic’s peak has come to a sudden and definite end.
Large-scale acquisitions, such as Sitel’s acquisition of fellow US-headquartered BPO SYKES, have reconfigured the hierarchy of providers in a global market currently valued at some US$90 billion and predicted to hit US$131 billion by 2025.
“Economic disruption always produces winners and losers, and that’s one reason behind the consolidation that’s occurring,” Shirley Hung, vice president of Everest Group told Nearshore Americas recently. “The landscape is extremely fragmented and it’s ripe for investment, whether it’s larger companies looking to extend their footprint more quickly or leveraging their combined scale to drive synergies.”
Technology at the Fore
The standout deal of the last few months was the Sitel-SYKES agreement. It was a big money move, with Sitel acquiring a reported US$2.2 billion of SYKES’ outstanding shares, pushing the value of the Sitel organization to US$4 billion.
France’s Webhelp also acquired Latin America specialists OneLink BPO, in a deal that Webhelp Managing Director Sandrine Asseraf told Nearshore Americas would “help significantly accelerate our growth in Latin America, and help solidify our presence in the US market.”
Meanwhile, Jamaican BPO, itel, acquired Guyanese rival Emerge BPO. The deal, said CEO Yoni Epstein, would allow itel to offer true labor arbitrage regionally as interest in the Nearshore grows.
“We’re definitely seeing an increase in M&A activity though it generally falls into two camps,” said Hung. “One is acquiring for footprint, as in the case of Sitel Group acquiring SYKES or Webhelp acquiring OneLink BPO; the other is acquiring for digital capability as in the case of Genpact acquiring Enquero or TELUS International’s acquisition of Playment.”
For Stephen Loynd, industry analyst and founder of market intelligence firm TrendzOwl, recent activity sets the technology differentiator as linchpin within an industry whose traditional focus has been based on cost savings.
“Covering the M&A space in the past meant talking about globalization – where the services would be delivered from, i.e. labor arbirtrage. Now, more and more, technology is the theme that must be wrestled with,” said Loynd.
His rationale is two-fold; the development of new economy companies that have grown at astronomical rates in the last 18 months, and the lesser-discussed need to meet new employee expectations.
While SYKES was already known for building acquired intelligent automation and digital capabilities via acquisitions of its own, including ClearLink (2016) and RPA provider Symphony Ventures, the interest in the new economy means greater digital capacities are required from global BPOs to provide for digital-first clients.
“New economy clients in verticals like gaming and fintech have grown exponentially. From this standpoint, technology’s importance comes to fore. BPOs are entering the tech startup space because the growth potential there is so much bigger,” said Loynd.
“The landscape is extremely fragmented and it’s ripe for investment, whether it’s larger companies looking to extend their footprint more quickly or leveraging their combined scale to drive synergies” — Shirley Hung
But he points out that the relationship between employees and employers has altered during the course of the pandemic. The fast food and retail industry witnessed mass walkouts after employees, fed up with degrading work environments and pay despite a spent a year as ‘essential workers’, decided to show that enough was enough.
BPOs do not operate in a vaccuum, Loynd pointed out. He believes that contact center space must respond to both to employees’ needs and to fortify their operations in a world that has proven itself to be dramatically unpredictable over the past 18 months.
“Companies are responding to the demand of employees more and more and must offer employees a more flexible model that they can take advantage of, including the hybrid model,” he said.
“They need to respond with agile, efficient platforms that are capable of managing all this structured and unstructured data so that they can better service their customers, and make life easier for their employees at the same time,” Loynd added.
Acquisition of Knowledge
Zoom, the video platform that profited from the move to work from home by much of the global workforce, recently acquired Five9, a major intelligent cloud contract center provider valued at US$24 billion.
Zoom CEO Eric S. Yuan said that the deal would enhance Zoom’s ability to connect to customers, citing the increased demand by customers for customized and personalized experiences.
“Today, enterprises not only need to enable customers to engage via their preferred channel, they need to empower their teams to accomplish more, and do so with empathy, purpose, and connection,” said Yuan in his blog explaining the move.
This is one example of the shift towards acknowledging the strategic importance of contact centers and the role excellent customer service plans in productive positive business outcomes beyond driving costs down, Hung explained. For that, the right talent is necessary.
“The management level built from successfully driving operational efficiency is now being asked to deliver strategic impact as well, but that instant change in mindset is not easy. Many organizations do not have the required expertise in-house, and to build it would be too costly and time consuming. Instead, they’re looking to partner with another organizations to drive increased business value through improving customer experience,” she said.
A Bigger Piece of the Pie
The increase in acquisition activity also has its roots in the usual pursuit of growth and market share.
“Up until the pandemic there was a lot of M&A activity, but then the pause button was hit,” said Peter Ryan, BPO consultant and principal at Ryan Strategic Advisory. “What denotes the difference now is that some companies are looking to be bold. We’re seeing exposure of gaps in capabilities or services, but other companies are simply wanting to take bigger share of the pie.”
The Sitel-SYKES deal now puts the Sitel “likely within the Top 3” BPOs in the world and huge creditability has been added to the brand, said Ryan.
Meanwhile, OneLink’s acquisition by Webhelp has helped address the French outsourcer’s global Achilles’ heel in terms of the geographies it had a strong presence in, and itel has cemented its place as a go-to homegrown option in the region.
But perhaps more importantly, these acquisitions underline the growing value of Nearshore as an outsourcing hub for global clients, and the dramatic increase of interest in Latin America for outsourcing services. Ryan Advisory’s recent buyer’s survey of 628 enterprises in North America, Western Europe and Australia found that a Nearshore presence is a primary matter of importance for many companies.
“We asked buyers to evaluate 30 different competitive advantages. We found out that significant Nearshore delivery footprint was the third-most important factor an outsourcer could bring to the table. By contrast, a large offshore footprint that came in the bottom quarter of options,” he said.