Large Contract Restructurings Lifted Outsourcing Market in First Quarter

HOUSTON, April 21 /PRNewswire-FirstCall/ -- TPI, the largest sourcing data and advisory firm in the world and a unit of Information Services Group, Inc. (ISG) (NASDAQ: III), an industry-leading information-based services company, released data today showing that contract restructuring, in which clients renewed, renegotiated, or expanded existing contracts lifted the global outsourcing market during the first quarter of 2010.

The 1Q10 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, recorded total contract value (TCV) of $19.5 billion, up 25 percent from the first quarter of 2009. Contract restructurings accounted for 42 percent of TCV, far surpassing the previous record of 29 percent set in 2006.

While restructurings fueled the growth in two of the three regions of the world and IT outsourcing (ITO) and also accounted for three of the four mega-deals awarded in the quarter, an analysis of TPI Index data indicates that the market is continuing to recover at the slower pace it began in the middle of last year. TPI anticipates restructuring activity will continue at an above-average level for the rest of 2010 but is unlikely to account for as high a percentage of TCV as more new-scope contracts are added to the pipeline.

"The real story in the first quarter of 2010 was the large amount of restructuring activity, which greatly impacted a variety of key outsourcing metrics," said Mark Mayo, Partner and President, Global Operations, TPI. "The underlying market is recovering at a much slower and more uneven pace than those heady growth rates would suggest."

The TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. Now in its 30th consecutive quarter, it is the industry's authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

While the TPI Index finds clients renewing, renegotiating and expanding existing contracts every quarter, large restructurings, especially the three mega-deals, had a very significant impact in the first quarter of 2010. The result was robust growth in a number of market metrics. For example, the quarter's four mega-deals, those contracts valued at $1 billion or more, bested the two during the first quarter of 2009, and overall mega-deal TCV more than tripled year-on-year to $7.1 billion.

In all, 109 contracts were awarded in the quarter, down 21% year-over-year, and there were fewer awards valued at greater than $200 million. This represents a break in the pattern of a greater number of smaller contracts seen over the last four or five years.

Regionally, restructurings fueled TCV growth of 7 percent year-over-year in Europe, the Middle East and Africa, and 47 percent in the Americas, which had its best first quarter since 2006. Asia Pacific, which did not see significant restructuring activity, increased its TCV 35 percent over a relatively weak first quarter of 2009.

Restructuring activity also gave a significant boost to TCV in the ITO segment, which expanded 46 percent, with particular strength in Application Development & Maintenance (ADM) and ADM-plus-Infrastructure contracts.

Business process outsourcing (BPO), which saw minimal restructuring activity, remained slow as clients postponed transformational projects and other initiatives requiring large investments. However, there are some encouraging signs in the market. For example, while still significantly weaker than a few years ago, Human Resources turned in its second relatively solid quarter in a row.

Among vertical industries that have historically been critical to overall outsourcing market success, Manufacturing increased its TCV by 69 percent, while Financial Services TCV slipped 18 percent. Surprisingly, the Travel, Transportation & Hospitality vertical led all industry sectors with its best-ever TCV of $5 billion, more than quadrupling results from a year ago. Leading the charge were contracts awarded by a U.S.-based airline, a European logistics company and the French railway SNCF.

Looking ahead, TPI anticipates that contract restructurings will continue to have an impact on the outsourcing market. Between $10 billion and $12 billion in annual contract value due to expire in 2010 will be renegotiated, up 20% to 25% from where the industry stood last year. Furthermore, service providers closed a number of contracts that had been "pushed out" at the end of 2009, and it does not appear there are as many larger contracts coming to market soon.

Said Mayo: "We don't expect a huge rush of new-scope contracting. Instead, we foresee a steady flow of new opportunities as the recovery continues at a slow pace."

TPI will hold a conference call to discuss the 1Q10 Global TPI Index at 11:00 a.m. ET today. To learn more or view presentation slides, please visit http://www.tpi.net/knowledgecenter/tpiindex/.

About TPI

TPI, a unit of Information Services Group, Inc. (ISG) (NASDAQ:III), is the founder and innovator of the sourcing advisory industry, and the largest sourcing data and advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise and extensive practical experience, our accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of business process improvement, shared services, outsourcing and offshoring. For additional information, visit www.tpi.net.

About Information Services Group, Inc.

Information Services Group, Inc. (ISG) (NASDAQ:III) was founded in 2006 to build an industry-leading, high-growth, information-based services company by acquiring and growing businesses in advisory services, including strategy, implementation and management, and market information, including market measurement, analytics and related product and services. In November 2007, the company acquired TPI, the largest sourcing data and advisory firm in the world. Based in Stamford, Conn., ISG has a proven leadership team with global experience in information-based services and a track record of creating significant value for shareowners, clients and employees. For more, visit www.informationsg.com.

SOURCE TPI