APAC Acquires ITI Marketing Services

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In a move to strengthen the confidence of investors, APAC TeleServices Inc., Deerfield, IL, a premier provider of outsourced customer service and sales, consolidates with private company ITI Marketing Services Inc., a provider of customer capture and care solutions, becoming the nation's largest teleservices firm with more than 14,000 workstations. The companies' combined revenue for 1997 was $492 million.


In exchange for 100 percent of the outstanding equity of ITI, APAC will pay $155.2 million in cash subject to certain adjustments.


"This acquisition is part of our long-term strategy to create value for our share owners," said Marc S. Simon, president and chief operating officer, APAC. "We expect that, over time, our share owners will benefit from the merger of these two leading companies."


APAC's price per share, though currently a few points over its initial public offering of $8 per share, took a nose dive last year from its high point of $56 per share, sparking anger from investors who issued class action lawsuits alleging that the company misrepresented information concerning the company's business and revenues.


"This consolidation move clearly shows that the company is going over this hurdle," said Mitchell Krassan, partner, EquiMark Limited, Philadelphia, a venture capital firm.


"We believe that client concentration and underutilized capacity negatively impacted our stock price," said Simon. "However, these two factors are being improved significantly through this acquisition."


The current stock price as well reflects a market capitalization that is only six times the run rate of the company's combined cashflow, an attractive incentive for investors.


The company expects the impact of the transaction to be slightly dilutive for the remainder of 1998. "It is not likely to affect the stock price," said Krassan. "There is not necessarily a correlation between earnings and stock price in a growth industry such as teleservices. If investors believe that this is a positive move, stock price will go up."


As ITI is a private company, the current valuation of the company is unclear. According to the latest credit report issued by Dun & Bradstreet, August 31, 1996, almost 2 years ago, the condition of ITI, a subsidiary of Golder, Thoma, Cressey, Rauner, Inc. Chicago, IL, was unbalanced, inferring that the company was not able to meet its debt obligations. Operating income in 1996 was $3.15 million on $124.77 million in sales, or 2.5 percent, a low valuation according to Laurie G. Kolbeins, Managing Director, Texada Capital, Wayne, PA, an investment banking firm. It is not clear whether these figures are representative of the current health of the company, however.


"ITI's outstanding people and consistently high performance for clients make them very attractive," said Simon. With a revenue growth of 35 percent in 1997, and a 37 percent annual growth rate since its founding in 1986, "they have earned an excellent reputation for performance quality and client retention," said Simon.


"The acquisition of ITI now positions APAC as the leading strategic partner to clients seeking to optimize their customer relationships," he added.


According to Simon, APAC and ITI will be peerless given the combined company's superior leadership depth; database solutions from APAC subsidiary Paragren Technologies to support One-by-One(sm) marketing; customer optimization services delivered across multiple channels, including telephone and the Internet; "Active QA" real-time, interactive quality-assurance process; and scale in resources and infrastructure for significant growth.


Theodore G. Schwartz, chairman and chief executive officer of APAC will continue as chairman and CEO of the expanded company. Simon remains as president and chief operating officer. Reporting to Simon will be ITI's president and CEO, Raymond R. Hipp, who will have added responsibility for the integration and consolidation of the two companies. Joining Hipp will be ITI's entire executive team. He will be nominated to join APAC's board of directors.


In the near term, APAC and ITI will continue to serve their respective clients separately. As operating efficiencies are identified and new opportunities emerge, the company will consolidate certain functions.


"They are bringing the companies together slowly in a best-practices manner," said Krassan. "If you go in to change something before you understand what you are changing, you end up losing clients."


According to Simon, clients will see the benefits in operational performance, advancements in technology, cost effectiveness, stringent quality metrics, rapid facility start ups, and people development processes.


APAC currently operates 66 customer contact centers with more than 15,000 employees in 14 states. With the acquisition of ITI, these numbers will grow to 90 centers with 25,000 employees in 19 states.
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