The advent of a BPO-enabled M&A economy.

• Author: Madden, Jim
• Position: Manage Your assets - Business process outsourcing

Driven by pressure to deliver quick returns, and coupled with a shaky IPO market fueled by scarce capital and low valuations, the economic logic supporting continued consolidation within industries seems to be increasing in appeal.

According to a 2003 Boston Consulting Group study, mergers and acquisitions in this weak economic climate offer a sound business strategy. "Winning Through Mergers in Lean Times," which analyzed 277 merger and acquisition transactions that took place in the U.S. between 1985 and 2000, found that mergers that took place during periods of below-average economic growth have a higher likelihood of success and generate more shareholder value.

The study found that deals made during strong economic times destroyed value, on average, and deals made during weak economic times created a value 14.5 percentage points greater and returns 8.3 percentage points higher than the returns of the market as a whole. In addition, companies are even more readily willing to explore joint ventures, mergers and acquisitions with the advent of IT, F&A and HR business process outsourcing (BPO).

BPO is a growing strategic M&A tool used to outsource non-vital functions through highly specialized support service centers, paving the way for easier, swifter and more successful M&A consolidation--thereby enabling a new era of business growth strategy I coin the "BPO-enabled M&A Economy." I call on the nation's top corporate leaders to tell me what they think. Are we going to see greater round of consolidation ... and will the early adopters of BPO lead the way?

Contact: jim.madden@exult.net

We already have seen the impetus of M&A activity in larger corporations during this downturn economy. It can be seen in the IT sector (i.e., software giants like PeopleSoft), and is currently on the horizon in the telecom industry, with rumored megamerger of Bell South and AT&T. Further, we have already experienced the effects of over-inflated purchases in a strong economy, with the collapse of France Telecom and WorldCom after their buying sprees.

I believe any type of outsourcing, especially BPO, has the potential to make M&A easier. With outsourcing, there is off-balance-sheet financing so corporations can variable-ize their cost structures and get fixed costs down, which helps in valuations.

There are three major areas where BPO in a M&A activity can assist: 1) greater transparency when performing due diligence on operations such as F&A; 2) outsourcers...