Acquisitions are nothing new to the global CX industry, but two mega mergers announced over the past month have triggered an unusual amount of indigestion.
Four of the biggest fish in the CX pond agreed to pair their businesses and merge operations, resulting in two titanic bodies that will encompass about a fifth of the global CX market, in terms of total revenue. In late March, Concentrix and Webhelp informed of plans for an acquisition agreement valued at US$4.8 billion. Less than 30 days later, Teleperformance and Majorel announced their own intentions of merging, with the value of the buyout estimated at US$3.3 billion.
Those who see both mergers as a positive development argue that it will open attractive opportunities for the buyside.
“This provides an attractive proposition to global buyers of these services who are looking to consolidate their provider portfolio and work with fewer but more strategic partners,” pointed out Sharang Sharma, VP at Everest Group. “It will allow these brands to offer consistent CX delivery across multiple regions and languages, which can be advantageous to global MNC clients.”
The sentiment was echoed by Monti Becker Kelly, Webhelp’s newly appointed SVP of Global Accounts. She assured in an interview that Webhelp clients received the news as a “very positive” development.
“Many of them started thinking ‘Wow, this is going to deliver new synergies, additional footprint opportunities, more services which we will be potentially able to leverage,’” she said in an interview with NSAM.
Despite what could turn out to be positive developments for a segment of the buyside, the fact is that, if both mergers go through, the CX market will be taking a step towards the consolidation of dominant players.
According to Everest’s data, the top 10 players in CX –counting TP, Majorel, Webhelp and Concentrix separately– account for about 30% of the total revenue of the market, calculated to be +US$100 billion. The remaining 70% is shared among “hundreds, if not thousands” of smaller firms.
TP and Majorel claim that their unification will result in an “approximately US$12 billion revenue [for 2023] digital business services leader with a strong presence in all major economies of the world”. Webhelp and Concentrix estimate that, once combined, their total revenue for 2023 will reach US$9.8 billion. The two mega-organizations would represent nearly US$22 billion of the +US$100 billion global CX market, or about a fifth of it.
Mr. Sharma dismissed the possibility of both organizations growing too dominant, pointing out that “even with such a high share we don’t expect the duopoly of the market to stifle competition; the CXM market is a fragmented one with plenty of providers vying for opportunity.”
Nevertheless, he did use the term “duopoly” and recognized that “these new titans, together, will control a significant market share across regions: 15-20% in North America; 20-25% in EMEA; and 10-15% in Asia Pacific”.
Waves In the Market
As M&As have grown in frequency and size throughout the business landscape in general, they have come under heavier scrutiny from government organizations, academia and NGOs.
The Organization for Economic Cooperation and Development (OECD) has described mergers as a way of achieving growth not through pure competition, but by exercising raw market dominance. It has also pointed out that “some mergers would seriously harm competition by significantly increasing the probability of exercising market power”.
That opinion is shared by the Federal Trade Commission (FCT), which has warned that mergers by or among dominant market players can “create the opportunity for a unilateral anticompetitive effect.” The US Justice Department itself, through its Antitrust Division, has a long history of challenging M&As that threatened to create excessively dominant market players.
“These new titans [TP-Majorel and Webhelp-Concentrix], together, will control a significant market share across regions: 15-20% in North America; 20-25% in EMEA; and 10-15% in Asia Pacific”— Sharang Sharma, VP at Everest Group
The TP-Majorel and Webelp-Concentrix mergers might result in better business continuity for some of their clients. Even then, the fact that four companies will become two deprives potential customers from a wider pool of options. Some clients will find themselves doing business with a partner that they didn’t choose. Webhelp’s Becker Kelly mentioned that some of the company’s customers have wondered about how the merger with Concentrix will affect company culture.
“One of their questions was ‘Monti, how do you view the culture similarity?’. Because one of the key tenets of Webhelp is known for is our think-human culture and our value on employees an collaboration and a we-care culture,” she explained. “That’s something that we would never, ever want to lose and that our clients find unique about us”.
Becker Kelly assured, though, that both companies are “incredibly complementary on culture; in terms of talent acquisition and retention, in terms of the sectors that we work in, in terms of the compensation and benefits programs and rewarding and valuing employees”.
There’s also the possibility of price hikes. The unification of these mega players will surely result in bigger, more complex infrastructures that will eventually weigh heavier in the pockets of each organization, pointed out Bob Dechant, CEO of ibex. Price increases might not be seen across the board, but both firms could find themselves pushed into uncomfortable rates negotiations.
Outmaneuvering the Bigger Fish
Though there will be bigger fish in the pond, smaller CX firms find themselves in a relatively tranquil position, unafraid of starving due to the uncontrolled appetites of the titans swimming about.
Shirley Hung, Partner at Everest Group, underscored that “the global outsourced CX market is a highly fragmented one”. While big-time players exist, smaller organizations manage to survive and even compete by offering a more personalized, premium style of service.
“I think you have a lot of BPOs that are under that [market share], which have deep relationships with their clients, which are solving something that their clients are not getting from their multi-billion dollar partners,” Bob Dechant commented.
“Clients don’t look at these mergers as positive, and that’s why they look at companies like us as alternatives,” he added.
Ibex’s global headcount surpasses the 30,000 mark, and its yearly revenue for 2022 was US$493 million. It is no small player by any means, but it is dwarfed by industry behemoths such as Teleperformance (410,000 employees; US$8.6 billion yearly revenue in 2022) and Concentrix (270,000 employees; US$6.3 billion yearly revenue in 2022).
Though the smaller fish might be swimming with little worry right now, one should not disregard the appetite of the top players in the industry or of outsiders with interest in bagging the smaller ones. It’s been reported that ibex itself has been courted by private equity firms. When asked about those reports, Dechant dismissed them away as “rumors”.
Mergers: What To Keep In Mind
Big fish won’t crowd the CX pond to the point of having total control over it. Smaller players will be able to coexist, as long as they provide a differentiated, more personalized and/or boutique-like service.
Nevertheless, industry players and observers should keep an eye out for the appetite of bigger fish and track who’s eating who, particularly as mergers are expected to increase. PwC’s latest outlook for M&A activity indicates that, even under the cloud of economic recession, 60% of business leaders surveyed plan to push acquisition deals forward “as a way to accelerate the digital and environmental, social and governance (ESG) transformation of their businesses”. In the tech, media and telecom industries, 64% of CEOs surveyed said they plan to stick to their M&A strategy for 2023.
Everest Group expects an increase in M&A activity within CX in the next 12 to 18 months, including scale-focused and capability-focused deals.
“CXM provider margins tend to be lower than in other BPS segments, and it is not surprising that in the current uncertain economic environment, providers are focusing on tried and true strategies such as consolidation to deliver on growth objectives,” Shirley Hung commented.
“These mega-mergers don’t change that but rather accelerate that,” said ibex’s Bob Dechant. “This in turn leads to yet another mega-Merger because of the inability to organically grow their businesses aggressively.”
CX –like many other industries– is going through a transformative phase powered by emerging technologies. Firms are experimenting with generative AI tools to renovate existing services and offer new ones.
While increasing digital capabilities seems to be a priority among recent mergers, smaller companies will be able to compete and even gain the upper hand as long as they play the tech game smartly.
“It will be a mistake for providers to allow M&A activity to distract them from focusing on how generational AI such as ChatGPT can apply in the contact center environment,” said Hung. “This disruptive technology is already showing great promise and has the potential to level the playing field between big and small providers if leveraged responsibly.”
Even then, eyes must remain alert to what’s happening in the waters. Tech could become the great equalizer in CX, but it won’t necessarily protect smaller firms from the hunger of a bigger animal.