International Business Machines
) signed a definitive agreement to sell its worldwide customer care
business process outsourcing (
) services business for $505 million to Synnex. Under the terms of
the deal, IBM will receive approximately $430 million in cash and
$75 million in stock. The deal is expected to close in the coming
months and will places IBM's BPO business under Concentrix
Corporation, the global business services division of Synnex.
Additionally, Synnex will enter a multi-year agreement with IBM,
and Concentrix will become an IBM partner for BPO services.
IBM sold this business unit as part of a long-term strategy to
shift its focus to verticals in which it can garner higher margins.
The sale follows IBM's divestiture of other relatively low-margin
businesses such as retail store solutions (RSS), hard drives and
PCs. We believe that margins in traditional customer care BPO
business are substantially lower than some of the new business
segments such as cloud based total outsourcing solutions and
business analytics. In this article, we will explore how IBM will
benefit from this deal.
See our full analysis on IBM
IBM To Enhance Focus On New Initiatives
IBM's technology services and global business services divisions
together generate nearly $60 billion in revenues and contribute
over 35% to the company's stock value according to our estimates.
In its 2015 roadmap, IBM stated that new initiatives such as cloud
computing, big data analytics, social and mobile will be the key
driver for revenue growth.
Social, Mobile, Big Data and Cloud technologies are transforming
customer care solutions globally and companies are leveraging
technology to offer better customers services across traditional
and new channels. IBM has spent billions of dollars building its
business process outsourcing market globally with a number of
acquisitions that include Keneax and Emptoris etc in the past two
years. With this sale, IBM can now plough back some of the cash
into these high margin businesses and focus on building its cloud
based outsourcing capabilities.
Additionally, in the past few quarters, the company has been
restructuring low margin outsourcing contracts to improve
profitability. IBM has been successful in increasing its profit
margins, but restructuring these contracts has negatively impacted
GTS revenues. As per the deal, IBM can outsource some of its low
margin BPO business to Synnex, which will further help in improving
its profit margins.
We believe that Concentrix can provide better services to IBM
and its clients as it will enjoy economy of scale due to a bigger
share in BPO industry. Concentrix runs customer care call centers
for many businesses such as banks, insurance firms and healthcare
companies. It also provides front and back office services for
retail stores and banks, and processes claims for insurance
companies. Synnex believes that Concentrix can become one of the 10
top providers of CRM BPO services, an industry that generates more
than $55 billion revenues annually.
We currently have a
$234 Trefis price estimate for IBM
, which is 20% above its current market price.
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Price at Trefis