Synnex's Acquisition Of Convergys Creates A Business Process Outsourcing Behemoth

Synnex's $2.8 billion blockbuster acquisition of call center operations leader Convergys instantly puts the distributor with its Concentrix division into a clear leadership position in the Business Process Outsourcing (BPO) market, said Synnex CEO Dennis Polk.

The deal, in fact, represents a bold move by the distributor to dominate the BPO Market with an additional $2.7 billion in BPO sales, a global BPO footprint with 12 new countries, 6,000 services professionals and new customers in key vertical markets. Once the deal is completed, Synnex will have a global BPO footprint of 40 countries servicing clients in 70 different languages.

"With Convergys, Concentrix will have the geographic scale and expertise to fulfill all aspects of customer experience service needs, especially in high-value engagements," Polk said. "Equally impressive will be the combined customer list of the two organizations expanding a multitude of the Fortune 1000 today to the disruptors we'll see on this list in future years. We see many opportunities to sell deeper into the joint customer base."

The deal, which will be accretive after the first year, is expected to generate cost savings of up to $150 million over three years thanks to delivery center alignment, rationalization, third-party spending, increased leverage from its global infrastructure.

The financing of the deal will not impact day-to-day liquidity flexibility of Synnex, Polk said. He said the deal provides new business opportunities for both the distributor and the call center operator.

[Related: Synnex To Acquire Convergys In $2.4B Deal]

The acquisition will actually be done by Synnex's Concentrix division, with Concentrix and Convergys expected to be integrated into a single business. Concentrix is a wholly-owned subsidiary and top global provider of customer engagement CRM BPO services. It was formed after Synnex's 2006 acquisition of Connectrix, a global provider of call center, database analysis, and print-on-demand services.

Christopher Caldwell, Synnex executive vice president and president of Synnex's Concentrix business, said the deal provides a strong opportunity to drive growth by "cross-selling within our joint client base, leveraging the incredible talent pool, and being able to support many of our clients on a more robust geographical footprint."

The transaction will strengthen four of Synnex's strategic verticals including banking and financial services, healthcare, technology, and automotive, and will add to Synnex's list of Fortune 1000 clients in high-growth market disruptive companies, said Caldwell.

The transaction could take up to 12 months to close, Caldwell said.

Polk said timing of the acquisition came as an opportunity that presented itself just as Synnex was looking at its overall business, and that of its call center business in particular.

"When we looked at our overall business and where we wanted to take the Concentrix business, our initial plan was to do smaller tuck-in-type acquisitions," he said. "But when the Convergys assets came to the table, we saw a way to immediately get to where we wanted to go with the business. … It made sense to invest in this business."

Polk told analysts the acquisition is subject to the standard closing conditions that occur in large transaction like this one, primarily around the Hart-Scott-Rodino (HSR) pre-merger notification in the U.S. and similar laws in other countries. Shareholders in both companies will have to vote on the deal, he said.

"We believe there were multiple parties bidding for this asset," he said.

Caldwell, responding to an analyst question about Convergys' flat or falling revenue over the past three years, said that the decline in the business is related to its telco business segment, and was well-documented previously by Convergys.

"The Convergys team has done a very good job of growing other business. They just haven't been able to outrun some of the declines in telecom sector, and that's primarily focused around a large movement by two of their clients to move work offshore. [After the] due diligence process, we are very comfortable with the dynamic of the business where they are growing their market, the clients that they are attracting, and how we can continue to help that grow," he said.

Caldwell said the Concentrix business has used automation and digital technology to drive growth in the past eight quarters, and that Convergys is going through many of the same transformations.

"I think together we can speed it up, I think together we can actually drive some of those changes a lot faster from the client base," he said. "And where we see it really taking traction is we actually are growing net revenue because we're taking more share from our competitors within those existing clients where we might share a client with other competitors."

Convergys said the deal is a cash and stock transaction with an enterprise value of approximately $2.8 billion, including approximately $170 million of Convergys outstanding net debt.

Under the terms of the agreement, Convergys shareholders will receive $13.25 per share in cash and 0.1193 shares of Synnex common stock for each Convergys common share.