Kirk LaughlinPerforming due diligence for a merger or acquisition of a BPO or contact center company is an extremely time consuming activity usually with limited resources and time. In the pre-merger due diligence, the target company’s locations are most often viewed simplistically as merely the physical location. However, a most often overlooked piece is the location analysis, which should be a key component for any potential acquisition.
Location analysis, or a Community Screening Study, is important in developing an accurate purchase price and assists in avoiding costly post-closing liabilities and issues. These studies require knowledge not only in the site location and economic development field, but the ability to quickly size up real estate markets, workforce issues, saturation levels, competition, recruitment, historical attrition rates and retention viability. It is critical to align with professionals who have significant experience digging below the surface to see what’s truly going on in various markets.
John Bradshaw, Partner, Focus Bankers, LLC Investment Banking, Washington, DC notes: “I see great value in Community Screening Studies for both buyers and sellers of Contact Centers. Especially in complex transactions, an in-depth analysis of site location, labor pools, infrastructure and legislative factors should be mandatory as a part of due diligence. This is especially true in multi-site or international transactions when the buyer is unfamiliar with the geographic, political and labor resources of the target sites. For smaller projects, a “snapshot” analysis prepared for the buyer will help prevent post-closing issues between buyer and seller. On the sell side, a “snapshot” analysis would be very helpful as part of a Confidential Information Memorandum or the “selling book” in attracting potential buyers.”
Community Screening Study:
Obviously given the impact of real estate on the income statement and balance sheet, especially for a real estate heavy organization such as call centers, a comprehensive review of real estate is a key objective of any due diligence exercise. One piece of this puzzle is the location dynamics. A Community Screening Study is highly recommended for both the buy and sell sides of any merger or acquisition transaction. It is even more essential when the geography is unfamiliar – such as moving into foreign markets.
The communities where the target sites are located should have a brief Screening Study performed, with the focus on (but not limited to):
- Labor (availability, cost, access, quality)
- Competition/saturation rates
- Attrition rates (current and historical)
- Local salary surveys (call center, retail, warehouse, distribution)
- Unemployment rates (current and historical)
- Underemployment rates, especially in the retail sector
- Unionization rates
- Infrastructure
- Transportation
- Growth plans for the community
In some cases, sites can be non-performing but be located in a community where this is contra-indicated – perhaps due to inadequate management, hiring practices or other operational issues. Should this be the case, it is obviously critical to develop an internal team to determine a cost benefit analysis of closing the site versus working on internal issues and the associated costs.
Benjamin Boissevain, Managing Partner, Agile Equities, LLC, New York states: “Site location (Community Screening Studies) is a critical element in the M&A process for the call center sector. The success of an M&A transaction depends on selecting the company with the best strategic fit. In addition to such factors as client base and the quality of management, a company’s site locations, the local area’s demographics and the labor policies are key in ensuring the right fit, a thriving call center business and thus a successful M&A transaction.”
Recently, a non-U.S. based BPO company looking to acquire a mid-size U.S. call center company determined that Community Screening Studies would be an integral part of their M&A process. 300 US-based call center firms were originally researched, with the field narrowed to 170 targets that were identified as potential fits based upon the company’s acquisition criteria. Through the qualification process, the final target list included four companies. Upon recognizing the “final four”, Community Screening Studies were performed, providing much needed market intelligence. Potential concerns and issues in certain markets became obvious and the acquiring company was able to incorporate these reports into their due diligence, decision making process and negotiations as well as use this information to be aware of and potentially prevent numerous post-closing problems.
Most often, however, call center acquisitions take place without screening or performing Community Screening Studies. If location research is provided on the buy side during the due diligence phase, the acquiring company has transparent data regarding sites that may be non-performing due to various non-operational issues. Buyers and their mergers and acquisition firms who have Community Screening Studies at the outset will be better prepared to negotiate any post transaction costs off EBIDTA, allowing for a more accurate sales price, providing cost synergies and saving on post-transaction costs.
Ann Harts is President/CEO HartsGroup, Inc. and can be found also on LinkedIn.
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