EquaTerra, Provider, M&A

Service Provider M&A – Change of Control Doesn’t Have to Mean Loss of Control

By: Phil Morris, Managing Director, Europe and Asia - EquaTerra
Paul Cornelisse, Principal Consultant - EquaTerra

The outsourcing service provider market has historically experienced a steady stream of mergers and acquisitions (M&As) which began to pick up in 2007. An M&A event can cause concern for a buyer actively engaged with one of the parties involved, particularly if the provider is on the receiving end of a hostile bid. A solid outsourcing arrangement, however, is structured to anticipate and respond to futures changes. This is a necessity in a business relationship that spans multiple years. M&A is an event that buyers must proactively address as part of their outsourcing strategy.

The momentum gathered in 2007 in the mergers and acquisitions (M&A) market for outsourcing service providers shows no sign of abating in 2008. In the past several quarters we have seen a number of service providers changing hands, such as Northgate to Kohlberg Kravis Roberts (KKR), Syan Holdings to ACS and Getronics to KPN. The ownership and structural changes in the market are also marked by their differences; private equity investments, market competitor M&A and non-competitor mergers are all in play. But what does all this mean for clients of the service providers caught up in this M&A activity?

Clients frequently assume that when their service provider is acquired – in whole or in part – it is a “bad” thing fraught with risk. But when you step back and realize that the acquiring company is really buying client contracts, service delivery assets, revenue and people, the reality is that acquisitions generate unique opportunities for both parties to re-evaluate the current agreement. This can result in a more productive relationship with the added potential of access to the new “parent’s” capabilities. So, if you are a “good” client, you will not be stranded. Instead, you will be approached not only by the new owning company (to ask for assurances that you will assign the contract to them), but also by other outsourcers interested in winning your business – a situation potentially rich with opportunities.

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