In a move to create a more-established place for itself among global business process outsourcing (BPO) leaders, Stream Global Services and eTelecare Global Solutions have entered into a definitive agreement to combine in a stock-for-stock exchange, with Stream stockholders and EGS Corp. -- the indirect parent company of eTelecare -- owning approximately 57.5 percent and 42.5 percent, respectively, of the combined entity. The deal is projected to close in September 2009.
The combined entity, which will keep the Stream Global Services name, will have approximately 30,000 employees located in 50 solution centers across America, Europe, the Philippines, Latin America, India, the Middle East, and Africa. According to Scott Murray, Stream's chairman and chief executive officer, there will be "no material layoffs."
Murray explains that today's market places the onus on outsourcing vendors to offer clients the full package -- sales, marketing, customer care, and technology support. The combination with eTelecare, he says, virtually fit like a glove. "Clients today are like ones six to eight years ago," he says. "They're trying to keep customers longer and possibly regain ones they might have lost. With the expansion of our service offering and technology footprint, we believe we'll be top five in the industry once the transaction is complete."
News of the combination surprised Peter Ryan, lead analyst at Datamonitor. "It took me aback, because we've seen so little merger-and-acquisition activity in the contact center outsourcing space in the past couple of years," he says. "During that time, there has been a lot of tire-kicking and rumors, but nothing of a substantial nature."
Despite the surprise, Ryan says that the deal makes a lot of sense, noting the two companies' extremely tiny overlap regarding target verticals, technology capabilities, or locations. In fact, after speaking with representatives from both firms, Ryan determined the global footprint of the combined entity at 22 countries, with only two examples of overlap.
"Historically, Stream has been focused on technology support and customer care, while eTelecare has a lot of experience on the sales-and-marketing end," Ryan says of the complementary technology. "Now, [the combined entity] has the pillars of a multifaceted offering, and is more straightforward under the Stream name to go after full outsourcing contracts as opposed to bits and pieces of them."
Stream CEO Murray predicts that the combined company might approach $1 billion in projected revenue by year-end 2010, an ambitious goal that would require the company to begin integrating soon after the official deal closes in September. Perhaps as early as the fourth quarter of 2009 or the start of 2010, however, observers will begin to see the fruits of the combination long before the company reaches that billion-dollar threshold.
"We've already started thinking about integration, because combining systems and operations is important," he adds. "First, we will employ the same reporting, tools, and ability to go to market. Then we will extend services to eTelecare clients around tech support, and ours around sales, and drive revenue for them. As far as employee culture, they are very similar ones, but we must make sure the consistency and effectiveness is done quickly…before end-of-year."
Ryan believes there's no reason why Stream should fail to reach its aim of $1 billion in projected revenue by the end of next year. That level of achievement, he says, will generate the wherewithal and cachet to go after much larger prospects. "Client prospects don't want to work with outsourcers that aren't financially viable," he says. "Hitting [annual revenue of] $1 billion or more will go a long way in winning confidence and showing it's a big-league player."
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