Valuation Update for the Business Process Outsourcing Industry

March 31, 2011
Transaction volumes in the Business Process Outsourcing (BPO) sector decreased when compared to both the prior month and the level of activity reported in March 2010. According to Capital IQ, there were 64 deals announced in the BPO sector in March 2011 compared to 70 in the prior month and 87 in March 2010. While transaction activity has slowed, well capitalized companies continue to seek strategic acquisition targets to increase customer/market penetration and enhance their outsourced service offerings and capabilities.

The following are among the notable transactions announced in the BPO sector in March:

• Online retailer eBay, Inc. (NASDAQ: EBAY) announced it has agreed to acquire ecommerce and interactive marketing services provider GSI Commerce, Inc. (NASDAQ: GSIC) for approximately US$2.4 billion in cash. The deal implies a valuation of 1.4x revenue and 18.1x EBITDA based on GSI’s 2010 results. Pennsylvania-based GSI provides outsourced infrastructure to help merchants of all sizes conduct e-commerce on their behalf. The combination of GSI with eBay Marketplaces and PayPal will strengthen eBay’s position as a strategic global commerce partner for retailers and brands. With the deal, eBay gets an order-management, fulfillment, and shipping business that will allow eBay to compete with other fulfillment service providers such as Amazon, Inc. As part of the transaction, eBay will divest 100 percent of GSI’s licensed sports merchandise business and 70 percent of ShopRunner and Rue La La. (Source: eBay, Inc. press release, March 28, 2011)
  
  
• Financial services technology solutions provider Fiserv, Inc. (NASDAQ: FISV) announced it has acquired Credit Union On-Line Inc. (CUOL) for an undisclosed amount. Massachusetts-based CUOL provides a variety of transaction and back-office processing solutions for credit unions. The acquisition complements Fiserv’s existing outsourced processing services and allows Fiserv to offer both in-house and outsourced processing solutions to credit unions. (Source: Fiserv, Inc. press release, March 1, 2011)

• BPO solutions and consulting services provider SOURCECORP, Inc. entered an agreement to acquire HOV Services, LLC. Following the transaction closing, shareholders of HOV Services and SOURCECORP will each maintain 50 percent ownership of the newly formed entity, SCH Services, Inc. Michigan-based HOV Services provides document management outsourcing and business process improvement solutions. The acquisition expands SOURCECORP’s global footprint, increases its recurring revenue streams, and strengthens its expertise in the healthcare, finance and accounting, and HRO verticals. (Source: SOURCECORP, Inc. press release, March 14, 2011)
  

• Clinical management solutions provider Mediware Information Systems Inc. (NASDAQ: MEDW) announced that it has signed a definitive purchase agreement to acquire assets of CareCentric, Inc. for an undisclosed amount. Florida-based CareCentric provides billing and operations management, document management, electronic claims submission clearinghouse, denial claims management, and collection of online or faxed physician signatures. The acquisition expands Mediware's position in the alternate care solutions market. (Source: Mediware Information Systems Inc., press release, March 31, 2011)
  
  
• Claim management solutions provider Crawford & Company (NYSE: CRD.A and CRD.B) has acquired the assets of ClaimHub Inc., for an undisclosed amount. Kansas-based ClaimHub provides workflow solutions enabling property and casualty insurance companies, self-insureds, third-party administrators, and adjusters to manage and administer loss claims for physical damage, property damage, and catastrophic events, as well as claims processing from dispatch, file review, approvals, invoicing, and data analysis. The deal expands Crawford’s product offering and further enhances its ability to interface with clients. (Source: Crawford & Company, press release, March 7, 2011)