AVCJ Awards 2022: Exit of the Year – Mid Cap: Probe CX

COVID-19 represented an opportunity for customer experience and business process outsourcing (BPO) services provider Probe CX, but at first it posed numerous problems. Chief among them was ensuring continuity when the Philippines – home to 7,000 of the Australia-headquartered company’s employees – was rolling out lockdowns and work-from-home directives.

“At one point, the team was literally driving around Manila handing out laptops to staff who weren’t set up to be operating from home. Management did a great job in seeing that impact quite early and getting on the front foot in terms of transition,” said Tim Cooper, an investment professional at Five V Capital, which backed Probe CX through January 2022.

“It meant that the challenge turned into an opportunity because we were able to maintain strong up-time and delivery levels while a lot of competitors struggled.”

These sentiments are echoed by Jonathon Pearce, a managing partner at Quadrant Private Equity, which also invested in Probe CX. He notes that providers in India found it especially difficult to navigate this period – and the difference was even more notable given the reams of sensitive tax and health data handled by Probe CX’s government agency-heavy Australian customer base.

If anything, the situation demonstrated the viability of an Australia-centric BPO model. While the industry is well-supported by private equity globally, local deals have been sparse. Multinationals such as Teleperformance, Concentrix, TTEC Holdings, and TaskUs are the dominant players, but Five V reasoned that a well-managed domestic player would offer an element of differentiation.

“These are operationally intensive businesses you have to manage and optimise every minute of every day. We thought we could be very nimble, responsive, and dynamic, and ultimately that served us well with customers,” said Cooper.

Five V had already found success in Australia business services, a payroll software player that was acquired by a US strategic buyer in 2021 for USD 500m. The firm hit the jackpot again when KKR bought Probe CX for around AUD 1.1bn (USD 792m), generating a more than 4x return. Quadrant, which came in when the company needed capital to scale, exited with 2.83x.

Seeking scale

The anchor asset was Probe Group, a BPO platform established by Rodney Kagan in 1979. Kagan was keen to develop the business and had already recruited Andrew Hume, who previously led Salmat, an Australia multi-channel marketing company, to explore expansion and consolidation.

“Andrew and the team he had built possessed capabilities that stretched beyond the business they were running at the time. Rodney and Andrew also had a thesis around acquiring a range of different businesses in the sector,” said Cooper.

Five V agreed to support this growth and took a controlling interest in Probe in 2018. They quickly identified two bolt-on acquisitions – MicroSourcing, which was a division of Salmat, and Stellar, a provider of customer contact and communication solutions – but the private equity firm lacked the resources to do both. At the time, it was deploying its second fund of AUD 65m. (Five V has since scaled up, closing its fourth fund on AUD 550m with total assets under management reaching AUD 1.5bn.)

Quadrant, which had closed its sixth flagship fund on AUD 1.15bn in late 2017, was approached as a potential co-investor. The dialogue was facilitated by Pearce and Adrian Mackenzie, Five V’s founder, having previously worked together at CVC Capital Partners.

“We hadn’t looked at BPO or outsourced customers services before because there wasn’t an asset in the market that was of interest. But Five V had built something interesting. Probe had scale and was Australia-centric, but it was also diversified with operations in the Philippines,” said Pearce.

“They wanted to stay in the asset because they saw the longer-term opportunity, and the pitch was that we would come in, take the lead, and provide capital to fund future acquisitions.”

Quadrant bought a majority stake in early 2020 at an enterprise value of AUD 282m, facilitating a partial exit for Five V. The MicroSourcing deal closed soon after. It was a significant acquisition. At the time, Probe was generating AUD 200m in revenue and AUD 20 in earnings. MicroSourcing’s revenue and profit were AUD 100m and AUD 15m.

They lined up Stellar, which was posting AUD 250m in revenue and had previously pursued industry consolidation without success, as the next acquisition. However, progress was initially stymied by COVID-19 and the transaction didn’t close until September 2020, even as uncertainty around funding and operating conditions continued.

The business, rebranded as Probe CX, established itself as the largest provider of outsourced customer experience and BPO services in Australia and New Zealand, employing more than 15,000 staff across five countries, and working with over 600 clients. The Philippines remains a key outsourcing location, but Probe CX entered India as well with a view to future capacity expansion.

“As the service offering evolved, digital channels became more important. Customers used to pick up the phone and call their telecom carrier or just buy products online. Increasingly, they were turning to email, text, and chatbot functionality, and Probe CX’s job was to provide a seamless customer journey across all those,” said Cooper. “COVID helped accelerate that.”

The PE owners oversaw investment in emerging areas such as in-cloud BPO delivery services, where software provider Genesys became a key partner, and robotic process automation, which involved Probe CX developing its own technology solution called Convai. Much of this happened while the company was providing essential services to government agencies during the pandemic.

A broader platform

With revenue and earnings having grown to around AUD 600m and AUD 100m, respectively, there was a recognition that the next stage in Probe CX’s journey would require a different capital structure and a larger sponsor or strategic owner. Inbound enquiries were received from several parties, prompting Quadrant and Five V to launch a process. KKR then made a pre-emptive approach.

“We were looking at the international consolidation story, including interesting deals in the UK and US markets, but Probe CX needed a larger fund to address them. There aren’t many opportunities to enter the market at scale – and there aren’t many businesses in Australia with AUD 100m in earnings and a global growth angle – so Probe CX is accretive from that perspective,” said Pearce.

“Global private equity firms have a lot of levers to support growth in this industry, with strong insights, large networks for M&A, and portfolio companies that can use the services.”

Asked whether Five V envisaged such an outcome when it first invested, Cooper demurs. The strength of the team and client roster, the industry tailwinds, and the potential for acquisitions were readily evident, but Probe CX outperformed based on the scale it achieved on exit.

“It’s a– very resilient business with sold growth and defensive characteristics,” he said. “And then you’ve got the M&A opportunities on top of that.”

Pictured: Tim Cooper of Five V Capital (left), Christopher Coates of Quadrant Private Equity (centre), and Anzhi Cheng of AlphaSights at the AVCJ Awards

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• Trade sale
• Support services
• Technology
• Australia
• IT services
• Quadrant Private Equity
• Five V Capital
• AVCJ Awards