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Concerto Acquires Aspect, Expanding Role as Market Consolidator

Concerto Acquires Aspect, Expanding Role as Market Consolidator

Concerto Acquires Aspect, Expanding Role as Market Consolidator

7/13/2005
By Donna Fluss
Customer Interface

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Contact center market consolidation continued in 2005 as Concerto Software announced its acquisition of Aspect on July 5. The sale of Aspect was expected, but what was surprising was the price paid, an estimated $1 billion in cash (based on total outstanding common and common equivalent shares of Aspect stock on July 4th, 2005 at a price of $11.60 per share), as well as the identity of the acquirer, Concerto.

Concerto has shown a voracious appetite for acquisitions and has been a major “consolidator” of contact center-related infrastructure and software providers during the past two years. Concerto itself was a product of the merger of Davox and CELLIT Technology in January 2002. In the past 2 years it has acquired four other companies (Rockwell FirstPoint Contact, Melita, Positive Software and CenterForce) This is, however, the first time that it has acquired a company close to twice its size. (2004 revenues for Aspect and Concerto were $370 Million and $189 million respectively, excluding pre-acquisition revenue from Rockwell FirstPoint Contact, Melita, Positive Software and CenterForce Technologies.)

The Evolving Contact Center Landscape

Contact center offerings and market dynamics are changing in many ways. The contact center infrastructure market has matured. IP and IP-enabled contact solutions are viable. Hardware is increasingly viewed as a commodity and software has become the differentiator. Contact center hosting, which has been around for close to 10 years, is now considered a compelling alternative to premise-based solutions. Customers are demanding more complete platforms and vendors are struggling to deliver them, either through acquisitions or partnerships. As in all maturing markets, pricing is becoming more aggressive, forcing vendors to come up with creative methods for protecting their revenue and customer base. These trends are driving vendor consolidation.

Contact Center Market Impact

When a fast-growing technology segment like contact centers matures, the result is often more vendors than the market can profitably support. This leads to a wave of consolidations. (Remember how Computer Associates acquired many mainframe software companies in the late 80’s and early 90’s?) The contact center market has been consolidating for the last few years. Many smaller contact center vendors have already been acquired – several by Concerto. We are now in Phase Two of the consolidation process, where serious players with significant customer base and revenue are acquired. While it’s surprising when a smaller vendor buys a competitor twice its size, it is certainly feasible when the acquirer is backed by private equity firms with deep pockets. (Concerto is funded by Golden Gate Capital and Oak Investment Partners.) In the private equity world, these types of acquisitions are called “roll-ups.” They happen frequently, although we have not previously seen many of them in the contact center market.

The sale of Rockwell FirstPoint Contact and Aspect in the same 12-month period to the same company is striking. The ACD industry was founded on the Rockwell switch and Aspect has been a technology leader and innovator for most of its two decades. Rockwell and Aspect, two of the most influential stand-alone contact center platform vendors, will soon be owned by Concerto.

Concerto’s Role as a Market Consolidator

Concerto’s acquisitions give it a large portfolio of highly redundant products, some of which are already in the process of being integrated. Once the Aspect acquisition closes, Concerto will have two and possibly three contact center infrastructure platforms – its own, Rockwell’s and Aspect’s. It will have two workforce management offerings – one from CenterForce Technologies and one from Aspect. It already has two outdialing solutions – its own and Melita’s. Concerto probably sees this as an opportunity, not a problem. Consolidators classically work towards economies of scale in product, R&D, sales, marketing, maintenance and service. If Concerto follows the typical consolidation business plan, expect to see it eliminate duplicate products, cut costs and raise prices on legacy products.

Keep in mind that consolidators often dedicate the majority of their R&D resources to integrating their product portfolios, not to product innovation. They generally raise their maintenance fees on old products to help pay for the integration and to drive adoption of their “favored” technology offerings. Whether Concerto is being acquisitive for the purpose of building a strong contact center platform company or to flip assets will determine the level of long-term product R & D investments it is likely to make. All too often consolidators are “in the game” to rapidly improve cash flow and market share and then find a profitable “exit strategy” for their investors. This exit usually happens within five years and generally results in either an IPO or another potentially disruptive sale. In either case, end users will probably have to suffer through at least one significant technology upheaval.

End-User Impact

Consolidations tend to make the remaining vendors more profitable. And it is better to have strong vendors in a market. But end users should anticipate and take immediate actions to protect themselves from the extra costs and technology disruption the consolidation process can create. End users should review their contracts and aggressively communicate their needs to Concerto senior management. As Concerto is expected to reconcile and simplify its product portfolio, it is likely to retire quite a few products during the next two years. Even if Concerto plans to support your products for a longer period of time, it’s unlikely to invest significantly in product updates and innovation for solutions that are slated for retirement. It’s also likely that Concerto will raise maintenance fees or change support structures in ways that will increase these costs for some products.

Companies typically hold onto their contact center platform investments for 7 to 8 years and ten years is not unusual. Companies that find themselves in their first two to three years of owning a product that is going to be retired by Concerto should calculate the cost of ownership, given the changes in their cost structure, product support and innovation. In some cases, it will be more cost effective and beneficial to replace a relatively new system much sooner than originally planned. Of course, it’s best to try to work things out with Concerto first. It is also prudent to put all discretionary investments in Concerto and Aspect products on hold until the company provides written assurances about future product direction, pricing and support policies.

Final Thoughts

Now, it’s true that I’m jumping the gun and Concerto has done nothing more than announce this acquisition. However, my experience as a contact center manager and technology acquisition and asset manager tells me that these issues should be paramount for anyone impacted by this acquisition. This article is a call to action – if you have strong feelings about your investments, let Concerto know NOW – before all of its product and service decisions are made.

Author’s Disclosure

I own 500 shares of Aspect stock.

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