First Half Shows Greatest Deal Volume EverThe first half of 1998 has produced not only the most teleservices transactions for any comparable period history, it has also produced some of the largest transactions. There were 35 deals from January to June 1998 that resulted in over $1.5 billion of transaction volume, compared to 20 deals during the same period in 1997.
A few trends are driving this flurry of activity, one of which is simply the size of the transactions. There were four teleservices transactions that were larger than $100 million, including the largest teleservices deal in history, Matrixx Marketing's acquisition of AT&T Solutions Customer Care for $625 million. Matrixx's parent, Cincinnati Bell, has since filed to spin-off Matrixx (include AT&T Solutions) as a public company.
The teleservice consolidation craze that has impacted the industry over the past couple of years stepped up the pace with two large public teleservices companies merging with two large private teleservices companies that were owned by investment groups. IQI, Inc., formerly Ed Blank and Lexi International and owned by Thayer Capital, merged with ATC Communications Group and ITI, formerly Idelman Telemarketing and owned by Golder Thoma Cressey Rauner, was acquired by APAC TeleServices. The ITI deal was the second largest of the period, valued over $155 million.
The roll-up shows strong activity from Compass International, who completed eight transactions during the first six months of 1998. Compass, along with NCO Group, have lead the trend of teleservices companies acquiring non-teleservices businesses. Both of these firms have a strong focus on account receivables management (i.e. collection agencies) and are also adding other direct marketing services including lettershop, printing and market research. Delta Partners has been engaged by a fast-growing private telemarketer seeking to make several acquisitions over the next year, growing the firm to $200 million in revenues.
The public markets continue to beat up teleservices companies, which is fair for those that continue to miss their earnings estimates. To offset the stuck-in-the-mud public valuations for teleservices companies, a couple of firms -- TeleTech Holdings and TeleServices International Group -- have begun a play in Internet/e-commerce through acquisitions. The Internet is hot; let's see if these firms get a boost through the strategy expansion.
What will the rest of 1998 bring? Continued consolidation fueled by a need to gain critical mass, improve operating efficiencies, expand client bases and further penetrate existing client bases. The total year will break 1997's record of 50 deals by at least 20 percent.
<I>Michael Petsky is president of Delta Partners, LLC, New York, a firm dedicated to fostering the growth of database marketing companies through acquisitions and partnerships. <I>