Documens Boss

Document Outsource Service Providers – Leveraging Your Equity Value

By Paul Carman, SVP North America and John Symon, SVP Asia Pacific

Over the past 3-4 years there has been a number of acquisitions of document outsource service bureaus, offering microfilm, scanning, storage and archiving solutions. This situation has been driven by a number of factors, both internal and external, and is likely to gather momentum as size and scale become increasingly significant differentiators in a market which has historically been characterised principally, by a scan-to-archive only service, with the exception of a handful of larger or medium sized full service players.
 

External Drivers for Document Outsource Services

Many external forces are driving the increasing needs for outsourced services, including:

- Technology – there is now an array of intelligent document recognition software available on the market that can automate the process of large volume document scanning and intelligent data extraction, whether for mailroom type applications or as an input to a business process such as Accounts Payable/Receivables. The deployment of such technologies, involving more complex workflows and integration with other ECM and ERP systems does require a level of expertise and investment in both technology and people that can be beyond the scope and resources of the smaller service operation. An even higher level of technology investment in security, servers, 24x7 support and skill sets are required to add electronic document hosting and business process outsourcing applications.
 

Added to this, is the increased trend towards the deployment of cost effective SaaS (Software-as-a-Service) document management related applications - an additional technology driver that will affect the scan-to-archive market over time. This may become particularly relevant for the SME sectors, which is often the domain of the medium to small sized service bureau. Further, the trusted third party aspect, inherent in such hosted services, is a factor and can be a further challenge for such companies.
 

- Decentralisation & Digital Documents – As a growing number of documents are now electronically born, there will be increasing pressure on scan-to-archive only, back-file service companies as organisations choose to adopt scan on-demand solutions at the point of need, through the use of intelligent, Multi-Function Devices (MFD’s) with input to their own in-house ECM systems. True, there is still a mountain of paper documents out there but organisations may choose a lower cost, off-site, box storage option, combined with selective ad hoc scanning of documents that are referenced infrequently but still need to be retained for several years.
 

- The Power of Process – As end users in both the private and public sector strive for improved business efficiencies and lower costs to manage their core line of business operations, those service companies that are able to manage such business processes – end to end – will be able to increase their service charges, based on the value of these mission critical business processes and charge pounds per project and not pennies per page.
 

- Compliance and Legislation Demands - the need to comply with many sector rules and regulations has driven a great deal of growth in the ECM space. The document intensive nature of such new legislation being enforced in many countries, provides new areas of opportunity for document outsourced services, both in the public and private sectors, together with an increasing requirement for e-discovery in the legal sector, for example..

- Key Vertical Sector Drivers – A number of key vertical sectors will become even more important. One example is the Healthcare sector, where massive amounts of funds are becoming available in many countries to assist in digitizing Medical Records and improving efficiency. This has historically been a key area for scanning, digitizing and outsourcing of processes, which is becoming increasingly important.
 

Service Company’s Internal Drivers & Pressures

Even more relevant, are internal drivers that affect the achievement of increased growth in the document outsource service sector. Some common factors, challenges and questions to address, include:
 

• Owner operated – What happens to the business when not there? Concerned about putting your investment and money at risk? What is your continuity plan? What is your exit strategy?

• Lack of depth in middle management – Do you have the right team in place now to grow revenue and earnings? What key skill sets are you missing?

• Limited technical & operations expertise – What would happen to your business if your key operation or technical leader left the company? Do you have talented people who could take over?

• Lack of quality sales and systems – Do you have an effective sales process that is measured constantly? Do you have quality sales people that are true hunters and closers?

• Lack of effective marketing – Do you have an effective web site and marketing plan? Do you get new leads from your marketing efforts?

• Dependency on one core, vertical market – In today’s global markets, diversification of revenue is a critically important goal.

• Vulnerability of a handful of major clients making up the bulk of revenue – Is 50% or more of your revenue coming from less than 5 clients? Do you count on these clients for your success? What if you lost any one of them? How will this affect your bottom line?

• Declining revenue and earnings – The recession has hurt the Outsourced Services sector, perhaps more than any other ECM sector. At a recent AIIM Service Company Forum, many owners were worried about declining revenue and earnings. Is this a problem for you?
 

What Drives Overall Business Valuation?

One of the key responsibilities of any business leader is to increase the value of their company. This refers not only to revenue and earnings, but also to the many other factors that constitute the perceived value of a company. With over a decade of experience in improving business valuations, Document Boss has helped companies achieve enhanced value for their stakeholders. Some of the criteria in determining value include:
 

1. Quality of the Management and Executive Teams – For many companies and Investors, the management team experience, track record and strategies can greatly affect the final valuation
2. Revenue and Earnings History and Trending – An important component is always revenue and EBIT. Also, it is critical to note the trending of each; companies want to be sure business is growing.
3. Pipeline of annuity business and multi-year agreements – The sales pipeline is important as it is looked at as “guaranteed” revenue. In addition, multi-year contracts are highly valued, as it is guaranteed, annual revenue that will attract higher valuations.
4. Creating services that become vital business processes for your customer – If your company offers services that clients view as mission critical, they are viewed very favourably, as it makes it difficult for clients to move to competitors.
5. Simple Financials and “clean” Books – Having audited financials is a big plus. Books should be clean, simplifying any type of exit transaction. The less debt that is on the books, the easier it is to value the business and, in turn, to drive higher valuations.
6. Established and loyal customer base – The quality of the customer base is important. Having prestigious customers and perhaps, global clients, helps drive up value. During due diligence, customers chosen at random will be interviewed. A positive outcome will drive higher valuations.
7. Quality of staff & operations – The entire organization quality is always reviewed. For service companies, operational efficiency and excellence are very important value drivers.
 

Your Action Plan for Success

1. Build or revise your Business Plan, based upon the recommendations and observations above. Use a fresh outlook and perhaps “fresh eyes” to assist you.
   a. Establish innovative ways to generate new and incremental revenue
   b. Rationalize budgets to drive EBIT
   c. Diversify your markets and applications served
 

2. Review your sales and marketing plans to be sure they are using all resources available to you.
   a. Take advantage of all social networking opportunities
   b. Take advantage of local events and trade shows, as well as national opportunities, based upon your Business Plan.
 

3. Review your entire sales process and sales compensation program.
   a. Be sure all leads are carefully registered and followed up and that new prospects are being created
   b. Track and measure everything!
 

4. Focus on new or revised business opportunities that are mission critical to a client’s success
   a. Create entire solutions that handle a full document lifecycle
   b. Focus on applications important to the client to assure a continuous revenue stream
 

5. Review your most valuable resource - Your staff!
   a. Fully assess your team and identify gaps and new skill sets that may be necessary. Where required, offer training programmes to encourage loyalty and increase productivity
   b. Identify weak performers and create action plans to improve performance or replace them
 

6. As an adjunct to your Business and Strategy Plans, create an M&A Plan and/or an exit plan for your business
   a. If appropriate, a proactive plan will produce the best results in the fastest timeframe
   b. By having a plan, you will be able to better assess any offers that come to your company
 

Need Assistance?

Document Boss has in-depth knowledge of the Document & Business Process Outsource services sector. At no cost or obligation, we can help you in a variety of ways, including:

1. Reviewing and assessing your Business, Sales and Marketing Plans
2. Reviewing and assessing your sales and marketing process
3. Assessment of revenue and earnings improvement in other areas and new markets.
4. Assistance in your understanding of the current market valuation range of your business, no matter what the current circumstances or current revenue and earnings position.
 

Take a look at our website, and if you would like to set-up a confidential meeting to discuss your possible requirements, please complete the contact form here.