Contact: Scott Denne
After two asset sales helped trim its fat, Convergys beefs up with the $546m acquisition of Stream Global Services, a rival in the customer management services and software market. Convergys gains much-needed customer diversification through the deal since today just three of its customers account for half of its total sales.
Telco-focused Convergys generated 48% of its revenue in 2012 from AT&T, Comcast and DirecTV. That concentration hasn’t changed meaningfully over the past three years. While Stream Global was facing similar concentration, it wasn’t as severe. The target focused on the tech sector, and saw just 28% of its 2012 sales come from its top three customers: Microsoft, Dell and Hewlett-Packard. After the transaction closes, Convergys’ top three clients will account for one-third of total revenue, the same portion they contributed prior to its divestitures.
The acquisition plays into two other strategic initiatives: increasing geographic reach (Stream Global has a large European business, whereas Convergys concentrates on US-based multinationals) and adding new capabilities such as the lead-generation technology that the target brings.
Convergys disclosed the deal’s enterprise value at $820m, which would give Stream Global an equity value of $546m after backing out its debt load. It’s paying for the purchase with $400m from its balance sheet and the remainder by tapping new and existing debt facilities, leaving Convergys with about $200m in cash and $600 in debt (including what it will take on from Stream Global).
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