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The effects of the recession on outsourcing companies have made them attractive targets for acquisition, but with opportunity comes risk. There are distinct differences between the way things are done in India vs. the United States, and they can impact the true value of a company.
Shrinking client pools, lack of access to credit and competition from offshore destinations are squeezing some business process outsourcing service providers in the United States. With declining revenues come cheaper valuations. This creates opportunities for other entrepreneurs seeking to expand their outsourcing business quickly through acquisitions.
Market expansion opportunities are increasing at the same time that the outsourcing field is undergoing transformation, thanks in part to its own success. Outsourcing formerly represented a separate, recognizable business field with distinct boundaries.
While we can still identify leading service providers and industry trends, especially in voice-based general customer service operations, the non-voice or blended voice/non-voice outsourcing field has become increasingly vague. Where has it gone? It has diffused into the industries in which it serves.
In the human resource field, for example, distinctions between offshore outsourcers and onshore providers with global operations are blurring. Globalization, increases in the offloading of business processes and the common practice of handling some tasks with both onshore and offshore providers simultaneously is changing the face of outsourcing.
Buyers seeking to acquire specialty outsourcing companies will benefit from looking at market behavior within specialty outsourcing sectors rather than general merchant outsourcing. Specialty sectors are not always easy for international buyers to identify independently, especially in countries where large conglomerates dominate the economy and are highly integrated both vertically and horizontally. This is particularly the case in South Asia, where large organizations do not customarily break out specific business functions for outsourcing with the frequency that we see in the United States.
The appearance of valuation disparities is aggravated by a lack of credit facilities for South Asian companies, especially in the outsourcing field. Without a strong secondary market for private bonds in South Asia, companies rely heavily on stock issuance to meet their capital requirements. Consequently, market capitalizations based on outstanding stocks multiplied by current stock prices will appear inflated by U.S. standards.
On the question of identifying suitable targets, each outsourcing specialty has a point at which acquisitions and rollups become financially feasible. In the accounts receivable field (which includes the collections industry), acquisition prices below $10-$20 million present challenges in terms of generating economies of scale and sufficient work volumes that can be shifted to lower-cost destinations. The "sweet spot" for profitability for an acquirer does not begin until $40 million and up.
J2EE: EJB, JSP, Servlets, JSF, JSTL, JCA, JMS, JTA, JNDI, JDBC, JMX, RMI, etc.
Frameworks: Struts, Hibernate, JPA, iBATIS, JBoss AOP, Spring, JSF, AJAX, GWT, YUI, Flex/Flash, JUnit, and Jakarta common libraries.
Integration: Web Services on Axis and WebMethods; as well as the Web Service Standards such as SOAP, WSDL and UDDI.
| | E-Commerce News: Outsourcing: Acquiring Outsourcing Companies: Not For The Squeamish - The effects of the recession on outsourcing companies have made them attractive targets for acquisition, but with opportunity comes risk. There are distinct differences between the way things are done in India vs. the United States, and they can impact the true value of a company.
Shrinking client pools, lack of access to credit and competition from offshore destinations are squeezing some business process outsourcing service providers in the United States. With declining revenues come cheaper valuations. This creates opportunities for other entrepreneurs seeking to expand their outsourcing business quickly through acquisitions.
Market expansion opportunities are increasing at the same time that the outsourcing field is undergoing transformation, thanks in part to its own success. Outsourcing formerly represented a separate, recognizable business field with distinct boundaries.
While we can still identify leading service providers and industry trends, especially in voice-based general customer service operations, the non-voice or blended voice/non-voice outsourcing field has become increasingly vague. Where has it gone? It has diffused into the industries in which it serves.
E-Commerce News: Outsourcing: Acquiring Outsourcing Companies: Not for the Squeamish
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Tech Blog
May 10, 2009 11:51:29 PM PDT
E-Commerce Times > Business > Critical Issues > Outsourcing
| Read Next Article in Outsourcing
EXPERT ADVICE Acquiring Outsourcing Companies: Not for the Squeamish
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By Anthony Mitchell E-Commerce Times
02/24/09 4:00 AM PT
VCs Speak Out: Where the Tech Investments Are Going Venture capitalists are still looking for investments, but anything that hints of frivolity is out. What's in? Realism. The trick is to infuse your rock-solid proposal with enough creative sparks to set it apart. [Download PDF: 6 pgs | 606k]
With opportunities come risks. The best way to address risks is for buyers and their advisors to recognize them and plan their strategies accordingly, as described below. Identification of target markets presents the first challenge.
Changing Times
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