Captive Divestitures Doubled Last Year: Will We Be Seeing More of the Same?

Sarah Clayton

"They all think their babies are beautiful..." This is a classic response when you ask a BPO man or woman why more captive shared service centres don’t sell up.

In the last three years at SSON HQ, we’ve seen an unprecedented hunger for captive centres in the right geographies and/or industries from BPO providers. The Indian players in particular are bent on creating a global delivery network and in some cases quick revenue opportunities.

According to Everest's review of 2012, divestitures more than doubled – to 5 – compared to 2010 and 2011. Given providers are counting on their vertical specialisation to differentiate, it’s unsurprising that they’re stepping up their intent to invest. Last May we asked hundreds of shared services executives at the SSON annual European shindig who might be interested in exiting their strategy through a sale within the next 3 years – over 65 hands shot up (the room was too dark to take names).

So, why don’t more enterprises send their adolescents packing?

For one: Their location might be out of sync with a provider’s strategy. Or it might be too soon to sell, the parent may not have realised sufficient return or may still be in transition. Another reason is that leadership might be too proud or wedded to prior decisions to change their strategy. They might even have become good at what they do and/or see the work as strategic to be kept in house for flexibility in case they make acquisitions, or they may be worried about trade unions.

If a captive centre is being touted, its owners' expectation regarding valuation will usually be far greater than any provider's idea of its worth. They’ll be passionate and focused on the value of their service levels and be looking at the deal through the lens of a normal commercial sale. They’ll have forgotten, or they'll be ignoring, the lack of any sales engine or prospect client pipeline. They may even be taking a view on the multiple to pick. The provider, on the other hand, will be weighing up their risk and ability to drum up business in this field.

Where divestitures do happen it’s usually where a provider wants to plant their flag convincingly in a geography or industry; where the enterprise is willing to sell the asset; where people are willing to transfer to a new business; and where the ‘what’s in it for me’ has been satisfied financially for the parent and child; all that, and there still needs to be scope for continuous improvement.

Over the next couple of weeks we’ll look at how the best known divestitures have fared and share any tips involved parties have for those who are considering similar deals. We’ll also look at emerging markets where demand is hot.

Finally..…a family friend, the daughter of a country vicar, says that her father – when faced with babies held up for praise at village fetes – won’t risk being caught obviously fibbing and telling everyone how gorgeous their offspring are. He just says, "Now that’s a baby".

Thanks go to our mates Leo Curran, Nigel Edwards, Graham Russell and Cathy Tornbohm for giving us their thoughts.