Dialing for deals: Call centers and more keep telecom sector busy

  • Permira portfolio company reportedly bids for Interactive Intelligence
  • Avaya contact center unit reportedly on the block
  • Industry consolidating to face Cisco threat

In a summer marked by slower deal activity, leave it to telecoms to keep M&A players busy.

Tech, media and telecom has been the standout sector in a sluggish period. First-half U.S. M&A deal volume fell 11 percent to 2,291 from 2,585 in the year-earlier period, a recent study by law firm White & Case and Mergermarket  shows. The value of all deals fell 30 percent to $577.2 billion from $822 billion.

Private equity buyouts declined 8.4 percent in the six months while deal value rose 18 percent to $74.3 billion from $62.8 billion.

Amid the broader slowdown, the tech-media-telecom sector drew the most buyouts out of 10 subsectors, claiming more than 100 deals, followed by about 80 for industrials and chemicals.

Call-center disruption

Helping boost the sector have been deals for call centers, a sector under disruption by new technology. Call centers have been pressured by Cisco Systems and other big tech firms that are using less expensive cloud-based platforms to fundamentally change how these operations work.

The business has become a hotbed of activity around software tools and cloud technology to speed the process of communicating with customers and vendors in cloud-based systems.

Instead of the old model of communicating with a roomful of phone operators, connections are made via text, mobile phones, or any other platform under the so-called omnichannel approach.

This is forcing traditional call centers to enhance their technology, which in turn is providing opportunity for buyers with ready capital.

“The traditional contact center market is rapidly evolving under the pressure of the omnichannel transformation and the related rise in the importance of customer experience,” equities analyst Dmitry Netis of William Blair said in a recent research note on the industry.

“Centers of customer engagement — the contact center, web, mobile, social, marketing, sales, front office, and back office — are all combining into a single customer engagement hub.”

Overall, deal-makers have an appetite for tech related to healthcare, big-data analytics, financial matters, cloud services, data security and the Internet of Things, with a focus on middle-market deals, the White & Case-Mergermarket study said.

Big deals

Genesys Telecommunications Laboratories is taking advantage of the disruption to hunt for new acquisitions. Hellman & Friedman recently invested $900 million in GTL, valuing the company at $3.8 billion.

That’s about 2.5x the $1.5 billion at which Genesys was valued in 2012, when Permira, Technology Crossover Ventures and co-investors carved the business out of Alcatel-Lucent.

A spokesman for Permira declined to comment.

Since the investment, Genesys may be close to buying Interactive Intelligence Group Inc, Bloomberg reported early in August. A publicly traded company with a market cap of about $1.3 billion, Interactive Intelligence, a maker of call-center software, reportedly hired Union Square Advisors in July to explore strategic alternatives.

Meanwhile, Reuters reported on Aug 5 that Genesys approached Avaya Inc’s call-center business about a merger valued at $4-billion-plus. PE firms also contacted Avaya about a deal, the Reuters report said.

Avaya itself may be on the block as it struggles with roughly $6 billion in debt stemming from its 2007 buyout by Silver Lake and TPG, its current owners.

Sheila McGee-Smith, a telecom-industry analyst who writes nojitter.com, said her postings on LinkedIn and Twitter on the possible Genesys acquisition of the Avaya unit drew a larger-than-expected response.

“A deal like this [is] more about buying market share than about technology,” she said. “The benefit of a combination would be that instead of two R&D teams working on two different solutions, just one team would be work on one platform. That’s where the value of market consolidation comes in.”

Meanwhile, the broader telecom sector continues to churn out deals:

On July 31, Verizon Communications set plans to buy Fleetmatics Inc, a Dublin mobile-workforce-technology specialist, for $2.4 billion.

In the sponsored telecom space, Oak Hill Capital has been involved in two telecom buyouts this summer: Oxford Networks, a carrier owned by Novacap Inc, as well as Sovernet Inc. In one larger deal, Siris Capital set plans to buy Polycom Inc for $1.22 billion.

In the tech space, Platinum Equity LLC agreed to acquire Emerson Network Power Inc, from Emerson for $4 billion cash.

In another large deal, Francisco Partners LP and Elliott Management Corp agreed to acquire the Dell Software Group of Dell Inc for an estimated $2.4 billion.

Next in the space

Looking ahead, William Blair analyst Netis said two publicly traded contact-center companies haven’t yet been acquired after inConact Inc agreed to a roughly $940 million acquisition by Israeli software company Nice Systems. That leaves Interactive Intelligence and Five9 Inc still standing, he said.

Meanwhile, private firms such as 3CLogic, BrightPattern, ConnextFirst and Intelecom continue to proliferate in the space as competitors.

Customer-relations management companies like Salesforce.com, NetSuite, Oracle and PeopleSoft may go on acquisition sprees to own voice channels to enhance services around call routing, automatic call distributors, and interactive call response, Netis said.

“The floodgate on acquisitions is likely to open once one of the CRM vendors makes a run on a cloud contact center vendor,” Netis said in a research note.

“Among cloud contact-as-a-service companies best positioned, in our view, are 8×8, Five9 and Interactive Intelligence.”

Action Item: Read U.S. M&A  study here, http://bit.ly/2aIf4kh

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