Outsourcing Companies Sell Subsidiaries in a Bid to Specialize Rather Than Diversify

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 |  Includes: CVG, IIJI, JEC, T, TEAM-OLD
by: Outsourcing Insider

By: Audrey B.

A number of outsourcing companies have sold or are now selling their subsidiaries after less than stellar performance these past few months. In what had been previously hailed as the need for diversity in outsourcing offerings, some companies are now realizing that they may have bitten off more than they can chew.

The most recent company to announce the sale of a subsidiary is Michigan-based company TechTeam Global (NASDAQ:TEAM), who announced the sale of TechTeam Government Solutions last week.

The company announced on the 4th of June that they are selling TechTeam Government Solutions for $59 million in cash to construction and engineering firm, Jacobs Engineering Group (NYSE:JEC), in a move that was greeted with surprise by the market. According to Morgan Joseph & Co analyst Richard Paget, the deal was not the kind of needle mover that people expected from the company.

TechTeam Global cites that the reason for the deal is to allow the company to focus on the commercial market.

In a regulatory filing, the company stated that: “We intend to use the proceeds from the sale initially to eliminate our bank borrowings and increase our present cash position.” This concurs with the company’s current financial position following the release of its 2010 first quarter results, wherein the company reported a net loss of $2.7 million, with revenue of $48 million down 14.4% as compared to last year’s $56 million for the same quarter.

According to the company’s first quarter results, government technology services had dwindled since last quarter going down by as much as 25% from $20 million to $15 million this year.

At this stage, outlook is favorable for TechTeam, with the sale offering the company a chance to recoup its losses for the past two quarters, with the capability to focus more on enhancing its current remaining services.

Other companies that have sold, or are selling, a subsidiary in the past month are Cincinatti-based company Convergys (NYSE:CVG), who completed the sale of their HR line of business to European company, NorthgateArinso on the 2nd of June; and communications holding company, AT&T (NYSE:T) who announced that they are selling their Japanese network outsourcing operations on the 1st of June to Internet Initiative Japan (NASDAQ:IIJI) for $101 million. The deal is expected to be completed on the 1st of September 2010.

Disclosure: No position