Much has been written and said about the potential benefits to a company that chooses to exit the spotlight of the public markets and go private. But what about that company’s clients?
It’s a particularly important question for the customers of publicly traded service providers. And the happy answer is: Customers can win, too, provided management of the going-private company takes the opportunity (afforded to it by the deal) to further focus its business.
One of the biggest "wins" for the newly private service provider is a redirection of the financial mindset: Instead of chasing top-line growth by selling more services to clients — who may be looking to cut costs — the provider can instead look to build the bottom line by truly matching its offerings to its clients’ needs. Bingo: Both the service provider and its clients benefit.
At my company, we think that a focus on profitability over revenue growth is just one of the gains to be made in a going-private deal now being considered by a major global service provider.
Of course, there are risks to the clients of outsourcing providers, too, in these cases. One is that the service provider, perhaps with the urging of the private-equity backer, will look to transition its clients to common delivery systems rather than continuing to offer custom solutions that truly tackle the clients’ needs.
But it doesn’t have to be that way, and our experience is that private-equity firms understand the best practices of sourcing solutions.
Clients can and should do their part by rigorously examining their sourcing relations in light of any change in ownership status at their sourcing provider. Here’s where a good consultant can help. At TPI, our "punch list" for such a transaction would encourage the clients of a service provider going private to do the following:
- Review change-of-control provisions in the contract to determine whether they may affect your relationship.
- Engage the service provider to set expectations on service continuity and improvement going forward.
- Protect your rights to review and change key delivery personnel working on your account.
- Demand ongoing attention. Require that service providers’ senior managers undertake more frequent governance check-ins with the client.