In the current economic climate, there is increased pressure on commercial organisations to drive down operational costs, without compromising customer service, to maintain their competitive positions. There have been similar pressures for austerity measures in the public sector, in areas across central and local government and the NHS, where budgets are to be reduced and efficiencies achieved.

It is expected that continued fiscal pressure on public spending, along with the backdrop of increased demand for quality services, will serve to heighten the focus on outsourcing in the public sector in 2011.

At the present the UK Business Process Outsourcing 'BPO' market is worth £7.8bn per annum with the public and private sectors accounting for £2.2bn and £5.6bn respectively. A recent report issued by the IDC suggests that the potential BPO market in the UK could be worth upwards of £117bn per annum, highlighting the enormous growth opportunities for operators in the sector.

Large conglomerates have recognised this potential for outsourced service groups which span multiple markets and are exploiting opportunities through seeking both organic growth and expansion of their capabilities within existing markets.  In order to gain market share in a sector defined by a small number of key competitors, the large conglomerates are consistently seeking to acquire new service line capabilities to sell into their current customer base and to enter new markets. Acquisition strategies play an integral role in the business model of large BPO providers  with groups such as Capita completing an acquisition almost every four weeks.

Capita; the UK's market leader in outsourced services regularly uses strategic acquisitions to build a leading presence in new markets.  The Group's £86m acquisition in May of police radio equipment supplier SunGrad Public Sector Holdings marks Capita's entrance to the emergency services market, as part of a stated strategy to develop their emergency services expertise. A similar approach was taken to the business travel sector, beginning in November 2005 with the £11m acquisition of Lonsdale Travel. This platform was developed through the further bolt-on acquisitions  of Harry Weeks Travel for £21m in February 2008 and Booking Services International for £42.5m in December 2010. The combined companies cement Capita's position as the leading outsourcer in business travel, and have allowed access to a broad range of public sector clients, who can additionally be sold services by other divisions within the Group.  This has resulted in Capita competing as one of the top five largest forces in the business travel market, all within six years of entering the market.

The increased interest in the sector, and the requirement for large consolidators to find new scalable services and systems to add to their repertoire is resulting in an increase in levels of transactional activity within the outsourcing sector in 2011, with niche, software based outsourcing businesses achieving high multiples upon sale.

There is a widespread acknowledgement amongst large plc boards, that outsourcing administrative and back office functions will allow their company to focus upon excelling in its core offering - which is obviously attractive in the tepid conditions of current markets. These conditions provide a perfect storm for the owner-managers of SME's to capitalise upon the value which the service they provide could offer within the scalable platform of the larger groups of Capita, Xerox, Tata or Accenture.   

If you would like to know more about the value drivers which acquirers are appending to businesses in the outsourcing sector, or about the ways in which Ford Campbell could help you to maximise the value of your business, please contact James Edge on 0161 819 2500 or jedge@ford-campbell.co.uk