Tech: interest growing in the customer experience

Despite macro tailwinds and corporate discretionary spending being pushed back, the digital transformation juggernaut trundles on. With increasing competition for every pound of end-customer spend, attention is turning from the operational back end to how customers are won (Customer Engagement (CE)) and how services are delivered (Customer eXperience (CX)). We expect to see several UK mid-market assets addressing these CE/CX themes coming to market over the next year. 

Mid-market investors can gain exposure via: 

  • Contact centre technology providers with sticky recurring revenue and strong QoE, but long sales cycles and desire to move up the value chain; or  
  • high-margin but typically project based consultancies offering services around ad-tech, mar-tech, sales-tech, CRM, and digital commerce.  

Introducing our framework…  

We have developed a framework to help management teams and investors answer three basic questions to help them understand the transition from contact centre to CX provider:  

1. Are the company’s services coherent, sensible and future proof?  

2. What are competitors’ offering and where are they likely to move next?  

3. What should the company add next, and how should they package it? 

Contact Centre Service Providers  

Forward looking Contact Centre Service providers are on a journey to reposition from a ‘keep the lights on’ cost centre to revenue additive CX partners. They help clients to address customers from inception, providing differentiation via customer satisfaction and efficient sales and marketing. Offering high quality service lines on the left of the framework above facilitates the move into advanced analytics, CX and CE.  

This gives clients critical oversight of the whole customer journey. CX providers that understand this and address their proposition weaknesses early will find plenty of opportunities to grow in the current market. Focus for M&A should centre around moving from legacy vendors to best of breed and bolting on higher-value services (in practice moving down and right on the framework above). 

Front-end DX Consultancies 

Ad tech, martech and sales tech – these businesses are project based and as good as their last implementation or project. The quality of people on the ground is the key differentiator and such businesses often rely on the management team to both sell and maintain high quality delivery. Talent remains a key challenge in this sector and many players in structurally talent short markets are turning to academy models. 

Leading with advisory services allows consultancies to provide input into the client roadmap. Given that a client marketing model should never stand still this provides revenue visibility, if well managed. Whilst there is a degree of lumpiness in all project-based businesses, best in class consultancies will see a route to recurring (or at least reoccurring) revenue via automation, software optimisation and continuous improvement. This will typically be sold via an agile methodology bank of hours/capacity or accelerators.  

Pure play consultancies can be split into those targeting Enterprise (e.g. Salesforce, Adobe ecosystems) and those targeting SMEs (e.g. Hubspot, Monday and similar ecosystems). These businesses can be hard to scale due to their project nature and (in the case of SME focused ecosystems) the relatively small size of projects. Sales and marketing should therefore focus on reach and efficient CAC metrics (typically digital SEO and PPC rather than high-touch sales), and businesses that can demonstrate on-sell/cross-sell or recurring leave-behind services are attractive.  

Given the above challenges, routes to expansion via M&A allow consultancies to branch out into adjacent or complimentary ecosystems. We have mapped a number of these below, the secret sauce is in diversifying sufficiently to hedge ecosystem risk and grow TAM. But without starting to look like a digital marketing agency as this would dilute multiples when compared to a pure play.  

To discuss current opportunities in the CX/CE space, or the wider technology sector, please contact a member of the team. 

Mike Callow

[email protected]
+44 7894 594 500

Email Mike