Offshore sourcing firm TPI says that the number and size of outsourcing mega-deals has fallen in 2005, despite an impressive surge in the last quarter of the year. The quarter ending December 2005 recorded the highest contract value after the third quarter of 2004.
TPI’s findings are part of its year-end observations in the quarterly TPI Index. According to the advisory firm, a total of 293 contracts were awarded, up from 269 contracts last year. Yet, the total contract value (TCV) in the year—less than US$27 billion—was the lowest annual TCV in this large-transaction category since 1996.
The fourth quarter was a different story, though. Fourth-quarter results lifted 2005 to the highest number of outsourcing transactions ever awarded in the broader market, for contracts equal to or greater than US$50 million. Six mega deals were awarded in this quarter, with five in December alone. Total mega-deal value for the quarter was US$11.2B, representing 40% of the full year’s mega-deal value.
“The December surge in industry-wide mega deals produced a nice finishing surge for 2005 but was not enough to meet 2004 TCV levels,” commented Peter Allen, Partner and Managing Director, Global Practices, TPI. In 2005, the total value of global commercial outsourcing contracts declined by five percent to $75 billion from $78 billion in 2004.
On an annualized revenues basis, TPI says the overall commercial outsourcing market is flat driven by continued declining growth in IT Outsourcing (ITO) value. ITO market value has been marked by steadily declining, single-digit growth rates in the past few years. If such trends continue, TPI predicts that 2006 and 2007 will witness the first years for absolute decline in overall revenue derived from commercial IT outsourcing. However, a healthy growth rate for annualized revenue is projected for BPO at between 10 and 15 percent in 2006.
The year 2005 was also remarkable for an unprecedented concentration of contract restructurings, which represented 24 percent of TCV in the broader market compared to a historical average of 15 percent each year. A significant number of mega deals involved restructuring.
