UPDATED: Capita's Ventura swoop to drive CRM outsourcing consolidation?

Capita is beefing up its strength in front-office service provision with the acquisition of customer care BPO firm Ventura, as it looks to capitalise on the trend for enterprises reducing the number of vendors with which they partner. 

And the £65m deal could drive consolidation in the CRM outsourcing space, according to experts.

The purchase, which is Capita's largest in people terms to date, comes only weeks after it bought Bristol-based Call Centre Technology in May. The move will see it add 8,000 extra staff who are currently based at Ventura's offices in Yorkshire, Cardiff, Milton Keynes and Pune, India, where it has a 1,500 seat call centre, bringing the company's total headcount to about 45,000.
 
Paul Pindar, Capita's chief executive, said: "Ventura's flexible service model complements our established customer contact operations, which are integral to many of our long-term contracts and businesses. It also provides Capita with opportunities to offer wider customer management and back office outsourced services to key, blue chip clients across additional industry sectors."
 
The aim was to provide an "enhanced customer management proposition" on top of its existing admin and professional support services. This proposition would include customer acquisition and sales, help and information lines, technical support and emergency response services and be offered on a flexible or long-term basis, he added.

Ovum lead analyst Peter Ryan suggests the purchase will end up being beneficial in terms of complementary horizontal services and its CRM capabilities. "According to Capita’s 2010 annual report, the company’s ICT, Health and Business Services operation accounted for approximately 27% of £3.2bn in revenues last year," he says. "By absorbing BPO services provider Ventura (which made £8m in profit from revenues of £156m in 2010), this line item will be further padded. It also positions Capita to increase its CRM capabilities, a business line in which it has not been shy to invest resources. It is just over a month since Capita acquired Bristol-based Call Centre Technologies, enhancing its CRM technology backbone. With the purchase of Ventura, which is weighted heavily towards customer care BPO, Capita appears to be beefing up and rounding out its strength in front-office service provision.

"In an era in which enterprises are trying to reduce the number of vendors with which they partner, this move has excellent potential for Capita. With Capita’s approximate 50/50 split between government and private sector clients as of the end of 2010, Ventura will enable Capita to cross-sell non-voice services into some large enterprises across verticals, including O2, Tesco Bank, BMI, the RSPCA, and Google. Further, it will provide Capita with the opportunity to push enhanced voice services to its non-CRM clients."
 
Ventura saw sales for the year ending 31 January 2011 grow by 7.5% to £156m, on a pro forma operating profit of £8m compared with £741,000 in 2010. This meant that Capita paid the equivalent of 0.4x revenue and 8x pro forma operating profit for it, which John O'Brien, an analyst at TechmarketView deemed "reasonable".
 
He also believed that Ventura was the UK's second largest customer management-led BPO provider behind Vertex, which turned in revenues of £260m last year. "Capita was further down the list – hence the desire to beef up in this area. But combined with its existing customer management activities, including those of CCT, Capita could well now leapfrog Vertex into first place in the UK customer management services market," O'Brien said.

Moreover, Ventura will give Capita an "impressive" list of mainly UK private sector customers, including its former parent Next, O2, Orange, British Gas, Tesco Bank, Sky and British Midland. "We expect private sector to be a big focus for Capita over the next few years as it seeks new growth opportunities outside the public sector," O'Brien said.
 
But he added that one of Ventura's largest public sector clients was the Department of Work and Pensions, on behalf of which it ran the pension credit application line. "This is one of the few areas in the public sector that can be considered hot right now as the Government looks to make further pension reforms. With the additional capacity at its disposal, Capita should be well placed to benefit," O'Brien said.

Ultimately, Ryan believes that the purchase will position Capita nicely, as more UK-based organisations face the prospect of belt-tightening across their operations, making third-party vendors more attractive than ever.

Furthermore, the move also favours Capita from the standpoint of cross-selling complementary services across its own and Ventura’s base of existing clients. It also points to the commercial opportunities in the UK available to CRM outsourcers in the near to medium term, which is likely to prompt further consolidation of this sector.

“The deal follows the Teleperformance UK acquisition of BeCogent, which occurred in the second half of 2010, and points to vendors looking to consolidate their position as market conditions ripen in the UK for customer-facing third-party services, across the government and private sector," says Ryan. "With UK public sector spending being slashed across agencies and levels of government, demand for outsourcing of non-core functions is almost certain to increase.

“Meanwhile, with the latest GDP growth forecast from HM Treasury appearing to be anemic for 2011, at just 1.5%, and marginally better in 2012, at 2.1%, the efforts on the part of cash-strapped enterprises and non-profits to maintain end-user satisfaction levels at a cheaper price point are likely to result in opportunities for outsourcers. With so many organisations likely to push at least some customer-care operations to outsourcers, Capita’s acquisition of Ventura appears forward thinking. It also begs the question as to whether the next round of consolidation in the UK services market will occur sooner rather than later.”