Responding to Industry Consolidation

By Peter L DeHaan, PhD

Peter L DeHaan, publisher of TAS TraderAs the telephone answering service industry continues to consolidate amid a sellers’ market, it leaves many wondering what the future looks like as they contemplate their long-term strategy. There are three general scenarios that apply to most any situation: buy, sell, or stay.

Buy: Some large players, both from outside the industry and from within, continue their buying spree. While most of the good deals have been snatched up, there still exists many attractive targets. The objectives of this strategy vary. For some it’s the cash flow. For others it’s to pursue economy of scale. And for still others it’s the basic driving force that bigger is better. Regardless, these folks continue to make their acquisitions in pursuit of their core objective.

Three essential steps exist for those who by answering services. First is the ability to strike a sound deal. Second is to orchestrate a smooth transition. And third, which some people skip, is optimizing the acquisition for maximum financial results.

Some mid-sized players wonder if they should pursue this strategy. If it meets their objective, yes. However, they might fit better in one of the next two groups.

Sell: Some single location answering services (and perhaps all at one time or another) wonder if they should sell. This is a legitimate question, especially given the sellers’ market and the competition that exists across North America. Selling could make for a smart exit strategy.

For answering services pursuing this scenario, the goal is to do everything possible to make the answering service attractive to a potential buyer. This means maximizing EBITDA (earnings before interest, tax, depreciation and amortization). Items included in this pursuit include maximizing the profitability of each account, eliminating unnecessary spending, and removing owner perks from the equation. Each step made to improve EBITDA will serve to increase the sales price.

Stay: The remaining group of answering services are interested in neither buying nor selling. They want to maintain their operation as a single location answering service. Although there are many strategies to allow this to work successfully, the most promising one is to implement a niche and then pursue it for growth and profitability.

This niche could be a certain segment of the market, a unique way of on boarding or serving clients, or a compelling marketing vision that sells the company image as much as its service. Many answering services are successfully pursuing this course, proving that it can be done. But don’t copy their specific strategy. Instead tweak it to make your own.

When done strategically and intentionally, any of these options can produce a successful outcome. And that’s good for the industry and for its clients.

Peter DeHaan is publisher and editor of TAS Trader and Connections Magazine. Follow us on Twitter and like us on Facebook. Connect with Peter on LinkedIn.