Mega outsourcing deals tipped to rise

Following a nine-month decline, the number of mega-outsourcing deals - those valued at £545m or more - is on the rise, according...

Following a nine-month decline, the number of mega-outsourcing deals - those valued at £545m or more - is on the rise, according to new research.

According to a report from outsourcing advisory firm Technology Partners International (TPI), six deals valued at a combined £6.1bn were signed during the first half of 2004, five of them - worth £5bn - in the second quarter alone. However, the combined value of these deals is still less than the £8.1bn that were signed during the first half of 2003.

Big outsourcing contracts signed so far this year include a £600m extension of an existing deal between Bank of America and Electronic Data Systems to integrate FleetBoston Financial's communication infrastructure into Bank of America's voice and data network.

Other deals announced this year include a 10-year, £2bn agreement under which Siemens Business Services will take over the technology arm of British Broadcasting and a £1.9bn business process and IT outsourcing agreement between Capgemini and energy company TXU that was signed in May.

The environment for such contracts is stronger than it has been since last summer, said Jack Benton, vice-president of marketing TPI.

Benton said his company is currently helping to negotiate nine megadeals, including six for North America-based companies and three for European firms. Benton estimated that there are between nine and 11 other large outsourcing contracts under consideration. That would bring the total number of deals in the pipeline to between 18 and 20 deals, with a combined value of approximately £10.8bn.

Of all the deals still under negotiation, roughly half represent corporate customers in North America, while 40% represent European firms, and the rest are in the Asia-Pacific region, said Benton. Financial services companies are involved in about a third of the deals, he said. None so far include IT outsourcing arrangements by government agencies.

Benton cited an improving economy and a renewed willingness among corporate customers to invest in big outsourcing deals for the uptick.

TPI's Benton said regulatory compliance requirements have not been show-stoppers for big deals. Law firms that advise would-be outsourcing customers "are all up to speed on this", and the mandates have not deterred companies from moving forward, Benton said.

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