M and A, Rollups and Acquisitions

The consolidation of service providers responds to marketplace demands. Mergers and acquisitions offer opportunities for growth across borders, across industries and to defend turf against incursions of larger competitors.

M&A as a Core Competency of the Service Provider
Every service provider contemplating global markets needs to develop and implement a coherent strategy and process for acquiring new business. Enterprise customers should inquire about the provider’s M&A strategy and review its history.

Territorial Extension
Extension of services in a foreign country involves new managerial, legal, geo-political and financial risks. Selection of acquistion candidates requires careful attention to the strength of the management team and financial condition, the ability to take existing processes and extend them across the new subsidiary’s clientele in a “good fit,” and the ability to acquire technology and processes from the new subsidiary and extend them to incumbent clients and new clients in key markets.

Service Extension
By making an acquisition, a service provider can offer new lines of service to its customers. The viability of this strategy depends on the ability to locate complementary skills, to integrate them into the core service offerings and to avoid conflicts and litigation that might arise out of the acquisition.

Compliance Extension
Sometimes, an important purpose in making a service-industry acquisition is to enter a newly regulated market that requires governmental licenses.

Call Centers
In the call center industry, outbound telemarketing support might require a broker-dealer license to solicit customers for the sale of securities. Inbound call centers might need banking or insurance licenses to accept and process new customer loan applications, unless regulated processes are retained by the customer. Debt collectors might likewise need to register.

Specialty Outsourcing Markets
Outsourcers have begun to resemble their customers in some degrees, in order to comply with regulatory requirements in banking, insurance, real estate, finance and pension fund management.

Mitigating Risks
Acquisitions can accelerate a service provider’s ability to grow rapidly, to reach new transactions volumes that create economies of scale and fulfill legal compliance rules. Post-merger integration poses many operational, financial, business and legal challenges. Successful integration will benefit customers and the service provider. Incomplete, delayed or failed integration can damage customers and providers. Risk mitigation strategies should be adopted from the inception of the M&A consolidation strategy to completion of each acquisition.