By Sean Goforth, Director of Syndicated Research at Ryan Strategic Advisory

In the latest instance of a CX management firm beefing up its capabilities, global outsourcer TELUS International is acquiring digital services firm WillowTree. The US$1.225 billion deal will catalyze Canada-based TELUS International’s entrance into the high-margin world of digital services, while also diversifying its client base.

Charlottesville, Virginia, based WillowTree is a full-service digital design firm and app developer, with over 1,000 employees spread out across 13 studios globally. Last year, WillowTree notched US$140 million in revenue, and has grown by nearly 50% in the first half of 2022.

In announcing the deal, TELUS International President and CEO Jeff Puritt deemed the acquisition the “next strategic step” in the company’s evolution as a customer experience leader.

Digital apps and sleek web pages avail companies of the opportunity for more lucrative transactions. Consumers frequently reward ease of use online by spending more on existing products or services —and by opting for new ones.

Puritt alluded to such opportunities, citing the Super Bowl LVI app that WillowTree built for PepsiCo. Football fans spent long periods of time on the app during the championship game.  The FOX Weather app that WillowTree built is another hit, at times being the most downloaded app in the Apple and Google app stores.

One unique opportunity the acquisition presents is the lack of overlap among each firm’s client set. WillowTree’s client roster includes FOX,  Mastercard, Manulife, HBO, ABInBev, Marriott International, PepsiCo, and more than 40 other companies. TELUS International boasts over 600 clients across a wide range of verticals. Crucially though, they share only five clients.

In particular, TELUS International executives noted that the WillowTree acquisition would enhance its reach into the financial services industry. This is significant, given the emphasis that many players in this space are placing on enhanced, digitally-driven customer experience.

The acquisition reinforces the trend of outsourcers moving up the value chain to become full-service partners for companies undergoing digital transformation. According to an analysis by McKinsey & Co, the number of BPO deals that included a digital component rose steadily from 2016-2020.

Still, the move also occurs amid a late-stage economic growth cycle. Valuations for digital services companies are historically high. But with many countries lurching toward recession, some industry analysts are concerned that buying in the current shaky economic environment is risky.

For TELUS International, the deal marks its tenth acquisition since 2005.  Through organic growth and acquisitions, the company has expanded from 1,500 employees in the Philippines to approximately 70,000 employees across 28 countries. Soon it will be in 30 countries, thanks to WillowTree’s international footprint.

That growth path also reflects the rising role of high-tech solutions in outsourcing. A decade ago, TELUS International focused largely on front-line business services. Today, it increasingly devotes itself to ‘new economy’ services, such as AI and content moderation solutions, and the use of data analytics in customer care.

The deal is expected to close in January 2023, subject to regulatory approvals. As the deal demonstrates, BPOs seeking to stay competitive will need to constantly monitor their own digital capabilities—lest they fall behind as the industry moves toward higher-value services.