Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.
We don’t write about direct marketing very often, or its close relative, customer relationship management (or more commonly, CRM).
In light of Stream Global Services’ purchase of LBM Direct Marketing at the end of last month, perhaps it’s time we did.
Direct marketing (DM) is associated by many with junk mail, spam, unwanted text messages and annoying sales calls – thus it can be seen as a bit grubby. However the best DM, as pioneered by Lester Wunderman and David Ogilvy, has provided brands with highly effective campaigns over the years; it is a highly sophisticated way of communicating on a one-to-one basis and it is still the most easily measurable of all marketing channels.
Most of all, DM is the direct precursor of the increasingly effective mobile and digital campaigns we’ve been seeing recently. In fact, many DM advocates argue that digital and mobile are subsets of DM, or that with the advent of digital, DM’s time has finally come. After years of having to play ugly sister to their more glamorous cousins in above-the-line advertising, design or PR, one can see why so many in DM want to wave the flag for their industry. There’s also a school of thought – which I have to admit I’m a subscriber to – that states that in the digital age, DM/CRM is a far more powerful channel than, say, sales promotion.
Now, much of the dark art of DM is about data (what used to be called “lists”) and about contacting leads or maintaining relationships with existing customers. And a lot of this is done (still) by telephone, which brings us nicely round to Stream and LBM.
US-based Stream was only set up in 2007, but in its field – outsourcing and contact centres – it’s already become a giant, with more than 37,000 employees in 25 countries, supplying CRM, customer care and support services to the likes of Dell. Last year its revenues topped $2bn and EBITDA was $100m, so it’s a sizeable operation. Nonetheless its decision to pay almost £30m for UK-based LBM (seen as a call centre services operator) raised a few eyebrows among DM veterans.
However we at Green Square think it’s a canny move. LBM’s portfolio has grown over the years beyond simple contact centre support services. It has some bespoke software offerings, such as Intelligent Consumer Data, which combines Experian consumer profiles – 42 million UK adults, 22 million households and 340 variables - with the contact history captured from the 10 million “consumer interactions” the company makes each month. It also has a presence in many key industries, including telecommunications, financial services, utilities, automotive and retail.
In addition, the UK is emerging as the hottest market for contact centre outsourcing in Western Europe (as many big companies relocate their call centres back to the UK from India and the Philippines), and the acquisition will provide Stream with an increased presence in this important market.
By acquiring LBM, Stream gets offices in the contact centre hubs of Manchester and Belfast, and gets an educated, experienced workforce with good CRM skills - LBM’s strength is in demand generation as well as its recent emphasis on high-margin CRM consulting (notably including all-important data analysis and customer intelligence).
The UK is important to any player in the CRM space as the IMF’s latest forecasts for GDP growth indicate better prospects for the UK economy over the next five years than for its European neighbours. Assuming these forecasts are correct, the UK’s economic improvement will increase consumer consumption of goods and services, and subsequently increase the need for contact centre outsourcing (and UK call centres speak in English, the global language of business). This is reflected in analyst Ovum’s recent forecast (CRM Outsourcing Forecast: EMEA), which predicts that the rate of annual growth in UK contact centre outsourcing will outpace that of France, Germany, and Spain. In addition, UK companies and utility operators are much more willing than their counterparts in continental Europe to outsource work to third parties like Stream.
LBM’s employees and client base also benefit. Clients’ CRM operations will be led by a leading global pure-play CRM outsourcer, with sophisticated front and back office technology of significant scale, both onshore and offshore.
We believe that this deal will be the first of many over the next few years. Now that LBM is off the market, the pool of mid-sized, UK-based CRM players is smaller, placing a premium on the remaining firms (something we’ve seen in digital, as last year’s mega-acquisitions of AKQA and LBi demonsrate). Stream won’t be the only global player to find the long-term opportunities in the UK.
Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector.
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