Bain Capital is selling 49.9% of Japan’s largest call centre Bellsystem24 to trading house Itochu after introducing US-style management techniques and boosting profits at the company.
After the transaction, Bain Capital and Itochu will own 50.1% and 49.9% of Tokyo-headquartered Bellsystem24 respectively, the US private equity firm and the trading house said in separate statements on Tuesday.
The enterprise value of Bellsystem24 has risen by about 30% to Y130 billion since Bain Capital acquired the company in 2009 from Citi. The equity value creation has likely been even greater for Bain given the very cash-generative company has paid down a significant amount of debt taken on during the leveraged buyout. Bain also recapitalized in 2011.
Bellsystem24 has tapped into changing attitudes within Japan as large corporations look for ways to provide services at a lower cost, even as opportunities to grow their top-line in a mature domestic market are limited. Outsourcing is increasingly popular.
“Japanese companies are taking a long hard look at their workforces and deciding who and what can be outsourced – as opposed to carrying the fixed personnel cost themselves,” said David Gross-Loh, a managing director at Bain Capital.
“This is a gradual process, but it is gaining momentum helped by improved price proposals they are being offered,” he added during an interview with FinanceAsia.
The deal also further embeds Bain Capital in Japan where it has generally speaking been tough for private equity to win acceptance amongst Japan’s corporations and such high-profile joint ventures are rare. Sumitomo Corp sold a 50% stake in Jupiter Shop Channel to Bain in 2012, kicking off a similar partnership for Bain.
Speed dial
Boston-headquartered Bain Capital bought Bellsystem24 in December 2009 from Citigroup for Y100 billion (equivalent to $1.1 billion at the time) and around five to six times the company’s Ebitda.
Bain quickly overhauled the efficiency of the telephone operators within the call centres – introducing US-style management metrics that raised the amount of time agents spent answering phone calls.
Bain brought in chairman David Garner, formerly of Nashville-headquartered Sitel and Tampa, FL-based Sykes Enterprises, to enhance the efficiency of the operators. He will remain with the company.
In Japan, generally operator efficiency was very low versus global standards partly because customers paid according to the number of people employed rather than by number of calls answered.
“We thought there was an opportunity to offer Japanese customers better quality call centre service and more value for their money,” said Gross-Loh.
As a result Bellsystem24 has won some big accounts and grew revenues. The company now generates about $1.2 billion of revenues annually, up 11% year-on-year, according to market sources.
Bain was able to recapitalise in 2011 and took out a dividend. At that point Bellsystem24’s Ebitda had already risen by 215%.
Enter Itochu
Itochu was a rival bidder for Bellsystem24 back in 2009 and had teamed up with KKR. The trading house remained interested in the call centre company and talks about a joint venture gradually took shape.
With approximately 130 bases in 67 countries, Itochu brings a wide customer base for Bellsystem24. The trading house currently uses more than 5,000 contact centers and one of the synergies of the deal will be for Itochu to gradually shift its call centre business to Bellsystem24. This may take several years.
“We now look forward to working collaboratively with Itochu to further unlock growth opportunities for Bellsystem24 by leveraging Itochu’s large network of companies and IT expertise,” said Gross-Loh.
At the time Bain acquired Bellsystem24 financiers were concerned about the company’s heavy dependence on its major customer, Softbank. Bellsystem24 bought BB Call from Softbank in 2004 with the exclusive rights to provide Softbank BB and Japan Telecom with call centre services. The contract is up for renewal in 2015.
Since then Bain has broadened Bellsystem24’s client base.
Established in 1982, Bellsystem24 has 20,000 operators in 22 call centres across Japan and offers telemarketing and business process outsourcing to customers.
“The continued improvements in service quality and productivity have enabled Bellsystem24 to strengthen its leading industry position,” added Gross-Loh.
Bellsystem24 is the largest call center operator in Japan and competitors include Moshi Moshi Hotline and Transcosmos.
Going forward, Bain retains multiple exit alternatives such as potentially an IPO, selling more to Itochu or selling their stake to another company.
