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February 1, 2020

Getting the Most Value for My BPO – Part 2: The Long Explanation of Pricing in Call Center / BPO M&A

By: Outsource Consultants
https://outsource-consultants.com/blog/the-long-explanation-of-pricing-in-call-center-bpo-ma/

Each call center will have its own unique DNA, so this formula explanation is not a blanket for all centers but rather a general overview of how price is determined.  Financial buyers are looking for balanced, healthy businesses that will grow over the short term (3-5 years) and allow them to position for another exit down the road. Strategic buyers may also be seeking unique service offerings and other criteria that help to round out their existing center(s). There are buyers for underperforming call centers as well, although those formulas are less able to be described in short as they are more situational and either relationship, geography, or client based in nature.

Buyers look at a few key characteristics when determining what they will pay, with one being the key metric:

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization.

This is one measure of the health of a business, and the singular most important when determining price. We work off of Adjusted EBITDA, which adds back the owner’s discretionary spending (excess compensation or expenses) and explainable one-time events or capital expenditures, as buyers will not bear these costs after acquisition. For the most part, EBITDA for the trailing twelve months (TTM) will be most important, but buyers will want to see how the company has delivered EBITDA over the last 3-4 years. Prices are typically a multiple of EBITDA.

Determining a multiple of EBITDA requires an examination of the longevity and history of the business, it’s revenue and profitability volatility, strength of client contracts, client concentration, growth prospects, geography, people (management), and technology. Buyers will pay more for a business that has a long and steady history of profitability. Additionally, if the client roster is filled with long term, name-brand clients, the value goes up. Client concentration is a key factor, as too much revenue from too few clients can lead to unpredictability of revenue and the resultant higher risk drives prices down. Growth prospects are important — having a strong pipeline will certainly lead to a higher valuation. Geography can be important, especially if the buyers want to diversify their footprint, or are avoiding certain locations based on employment issues. A strong management team, both upper and middle, are important as well, especially for a buyer that wants to keep the business as is and run it as an investment. Technology is becoming less and less of an issue, due in large part to cloud-based platforms that are easily portable and scalable.

Here’s a diagram that describes the multiple spectrum and the factors that influence it:

EBITA Multiple

Once a rough valuation has been completed, the next step in the exit strategy is to determine the owner’s exit goals. Depending on the type of buyer profile that matches these goals, both price and type of exit can be affected. More about that in Part 3.

If you’re thinking about selling your call center, Outsource Consultants can help! Find out how you can simplify the call center transition process and receive top dollar for your business.

Outsource Consultants are contact center industry experts with over 25 years of outsourcing industry experience who have spent thousands of hours vetting and analyzing the strengths and specializations of the industry-leading outsource call center and BPO vendors. If you’re considering contact center outsourcing, simply call 888-766-4482 or email info@outsource-consultants.com today and we’ll help you find the call center solution that best fits your exact requirements.