Outsourcing Companies on an Acquisition Roll

by: Outsourcing Insider

By: Audrey B.

A number of companies have announced acquisitions in the past few weeks as part of their global strategies to complement existing outsourcing services. The acquisitions have been across several different verticals. But primarily acquisitions are being fueled by plans of expansion along existing geographies to fuel further growth with less overhead costs due to new infrastructure, or to complement existing services to take advantage of new trends and market changes.

Among IT outsourcing companies, notable acquisitions featured Managed Services Providers (MSPs). One MSP, mindShift Technologies, acquired outsourcing services provider ORBIT Systems on the 8th of February. This acquisition comes on the heels of mindSHIFT’s acquisition of another managed services provider Alpheon. According to Orbit CEO Steve McFarland, ORBIT is being acquired as part of mindSHIFT’s geographic expansion strategy as well as to enhance its cloud computing services in conjunction with ORBIT’s own cloud services.

Another acquisition by an MSP is PAETEC Holding’s (NASDAQ:PAET) 9th of February acquisition of XETA Technologies (NASDAQ:XETA) for $61 million. According to the company, the move was fueled in part to expand its cloud offering as well as to expand its geographic reach considering that a former acquisition by the company, Quagga, would become national overnight with the acquisition. The acquisition agreement, however, is currently under investigation pending possible breaches of fiduciary duty.

In the human resources and healthcare verticals, Xcel HR, a human resources outsourcing services provider, acquired Astra HR, a Maryland based Professional Employer Organization (PEO) on the 8th of February as part of its growth through acquisition strategy. Astra HR is expected to bring support services for Xcel HR’s payroll/HRIS platform, aside from growing its existing markets in the D.C. and Baltimore areas without adding more infrastructure. New Jersey-based payroll and benefits administration company ADP (NASDAQ:ADP) also acquired a company, practice management and electronic health records solutions provider AdvancedMD, on the 1st of March in order to complement each other’s outsourcing services and solutions for an enhanced customer experience. TriZetto, meanwhile, is acquiring Tela Sourcing Inc. to build Trizetto BPO, which will become an end-to-end outsourcing services provider. The company hopes to take advantage of healthcare reform to provide healthcare outsourcing services to different organizations including existing TriZetto customers.

Other acquisitions along other verticals include construction services company Carillion’s (CLLN) acquisition of outsourcing company Eaga, as reported on the 11th of February. According to Carillion Chairman Philip Rogerson, “The acquisition brings together two complementary companies, enhancing Carillion's position as one of the U.K.'s leading support services companies. The acquisition is expected to be immediately earnings enhancing and builds on Carillion's previously announced objectives for growth.”

Business process outsourcing provider Nexxlinx has signed an agreement to acquire Microdyne Outsourcing Inc. from L-3 Communications. The Atlanta-based outsourcer announced on the 23rd of February that it is acquiring Microdyne as part of its growth strategy, considering that the company is seeing increased demand for contact center services in customer retention, sales conversion, video gaming and customer support services. Similar to Xcel HR, Nexxlinx’s acquisition will also allow the company to expand its reach in Orono.

Other major outsourcing players, notably Infosys Technologies (NASDAQ:INFY) has yet to go ahead with acquisition plans but is currently in the market to carve out acquisition agreements with companies in the US. Infosys plans on spending up to $200 million on acquisitions that will help it secure projects in the government sector, a sector that has been drawing a lot of business in the past few months, as highlighted in a previous article.

More acquisitions are expected to come through in the next couple of months as companies, big and small, with growth strategies in hand are opting to expand towards existing verticals or branching out to new industries according to trends and market demand. The acquisition roll is likely to continue past first quarter 2011.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.