4 Key Trends Sparking M&A Activity in the Contact Center Industry

Gone are the days when companies acquired other companies simply to create scale. The traditional belief used to be that contact center companies had to be bigger to give themselves greater pricing power in the market. But the market has shifted, with a saturation of vendors able to provide a full panoply of services. Today, it is the customer that has the upper hand and is invariably a price maker and no longer a price taker.

As a result, there are other factors motivating companies to look at mergers and acquisitions beyond scale—strategic partnerships are formed to gain a greater geographic footprint, enhanced technological capabilities, expanded service capabilities, and an expansion into new industry verticals.

1. Increase Geographic Footprint

In general, the contact center world is divided into three geographic areas: onshore (Canada and United States), nearshore (the Caribbean and Central and South America), and offshore (principally India and the Philippines).

With ongoing labor cost pressures and a shortage of workers in North America, Latin America’s attractiveness for nearshore delivery has increased considerably. Similarly, large international companies are also looking for acquisition targets throughout Europe and the Far East.

The acquisition of Comdata, a customer management provider based in Italy, by Konecta, a leading provider of Spanish-speaking customer experience solutions, is a recent example of two large industry participants coming together to expand geographic coverage. Konecta, with operations in Spain, Portugal, Northern Africa, and Latin America, has now enhanced its footprint to include Italy, France, and North America.

2. Ability to Enhance Technology

M&A is a lever for companies to build their technology portfolios. Forward-thinking customer service organizations recognize the value of cloud computing and related technologies. These companies are looking to acquire competitors with capabilities that they do not already have, including robust social media monitoring, intelligent call routing, improved recruitment tools, digital analytics, and AI capabilities.

In today’s environment, companies are under pressure to deliver quality customer service and experiences at an ever-decreasing cost. Those interested in improving their self-service capabilities are looking to AI and chatbots to improve the quality of customer interactions and meet increased demand. New technology is not replacing the human element but taking some manually intensive tasks off the plate of agents, enabling them to focus on more complex, human-centric customer interactions.

3. Expand Service Capabilities

Companies are also using M&A to increase their range of service offerings. In today’s competitive landscape, service capabilities such as help desk support, outbound customer acquisition, debt collections, market research, order processing, and lead generation are crucial areas into which buyers are looking to expand.

By acquiring or merging with businesses that possess these desired capabilities, organizations can strengthen their overall service portfolio and cater to a wider range of customer needs. This strategic move not only unlocks growth opportunities but also positions contact center companies as industry leaders capable of providing their clients with a full array of specialized services.

4. Growth of Industry Verticals

Industry verticals such as healthcare, hospitality, and retail continue to play a significant role in driving mergers and acquisitions within the contact center sector. These industry verticals have emerged as particularly attractive for buyers thanks to the specialized knowledge required by contact center agents to effectively service clients in these sectors.

• Healthcare has emerged as a key industry vertical for M&A in contact centers. With the increasing demand for healthcare services and the growing importance of patient and provider experience, contact centers are playing a crucial role in providing efficient and personalized support to patients and healthcare providers.
• Hospitality is another industry vertical that is attracting considerable attention from contact center buyers and has made robust steps since COVID caused the industry to collapse in 2020. With the rise of online booking and the increasing need for customer support in this sector, contact centers are becoming an integral part of delivering exceptional customer experiences.
• The retail sector is also proving to be an attractive industry vertical for contact center M&A. With the rise of e-commerce and the growing importance of customer service in the retail sector, contact centers are playing a vital role in managing customer inquiries, complaints, and orders. Retail is an interesting vertical because it presents an opportunity for contact center agents to upsell on certain customer interactions, enabling the contact center to account for a greater percentage of the overall wallet share.

Buyers are increasingly recognizing the value of acquiring contact centers with expertise in these industry verticals. By acquiring established contact centers, companies can gain immediate access to a skilled workforce and industry-specific knowledge, accelerating their growth and market presence.

It should be noted that while financial services and telecommunications have been attractive industries for contact centers in the past, their attractiveness in the context of M&A is very limited. The significant volume of work that is outsourced in these two sectors is matched by the relative commoditization of pricing offered by clients active in these industries. Business services M&A activity resulting directly from a contact center’s expertise in financial services and/or telecommunications has not been nearly as prevalent as in the more nontraditional sectors mentioned above.

We expect to see a continuation of activity in the contact center sector driven in large part by the factors above. As large companies become larger through organic or inorganic growth, smaller companies, with highly specialized capabilities, will emerge. And just as in any typical cycle of life, these newly formed companies then become the acquisition targets of tomorrow.

Peter J. Hill is a managing director and leads the professional services investment banking group at Brown Gibbons Lang & Company (BGL), an independent investment banking and corporate financial advisory firm serving family- and entrepreneur-owned, private equity-backed, and publicly traded companies. Hill has more than 30 years of experience in mergers and acquisitions and capital markets advisory across all subsectors of business services, especially within the contact center services industry.