10 Sep 2013
On September 10, 2013, IBM and SYNNEX announced a definitive agreement for the sale of IBM’s customer care business process outsourcing services business to SYNNEX, and a multi-year strategic business partner relationship.
A copy of the announcement press release is available here http://www-03.ibm.com/press/us/en/pressrelease/41908.wss
IBM’s business model is based on continuous transformation, and a shift to higher value solutions is an important element of that transformation.
Over the last several years, IBM has made significant investments to enhance its Smarter Planet and analytics capabilities – many of these providing the basis for innovative solutions in business process outsourcing. Recent examples include the acquisition of Kenexa in human resources for Smarter Workforce, Emptoris in supply chain management, and Wilshire in mortgage servicing for Smarter Lending.
Today’s announcement continues this transformation. By partnering with Concentrix, SYNNEX’s outsourcing services business, and leveraging their ongoing investments in customer care services, we will create a more robust and effective solution to the customer care ecosystem, increasing the value of every client interaction.
IBM will sell its worldwide customer care business process outsourcing services operations to SYNNEX. The divested scope includes contact centers, as well as specialized end-to-end processing for banks, insurers and healthcare clients. The business will be integrated into Concentrix.
As part of the transaction, SYNNEX will enter into a multi-year agreement with IBM and Concentrix will become an IBM strategic partner for global customer care business process outsourcing services.
The transaction will be completed as soon as is practical, subject to the satisfaction of regulatory requirements and customary closing conditions. The transaction is expected to be completed in phases, with the initial closing expected within several months, and subsequent closings by the end of 2014, subject to similar conditions, local agreements and the information and consultation process in applicable countries.
Proceeds and Gain
The transaction price is $505 million and as consideration, IBM will receive approximately $430 million in cash, net of balance sheet adjustments, and $75 million of SYNNEX stock, which represents less than 5 percent equity ownership in SYNNEX.
IBM expects to recognize a total pre-tax gain on the sale of between $125 million and $175 million. This gain will be recognized consistent with the closing schedule for the transaction.
The exact amount of the gain and the breakdown by closing date is not yet determinable. The variables that can impact the final gain include the valuation of the final balance sheet transferred, the valuation of other related agreements, and transaction-related expenses.
Any gain received in 2013 will be incremental to the previously provided “all in” guidance of at least $16.25 of operating earnings per share. The gain received in 2014 will be addressed in IBM’s expectations for 2014 operating earnings per share which will be provided in January of 2014.
Revenue and Profit Impact
IBM’s worldwide customer care business process outsourcing services and industry process services are included in IBM’s Global Technology Services segment. In 2012 the divested business delivered $1.3 billion of revenue, which is over 1% of IBM’s total revenue, and $0.1 billion of operating pre-tax income.
This transaction results in a higher margin profile consistent with IBM’s shift to higher value, higher margin businesses.