Customer experience player, TDCX Inc. (NYSE:TDCX) has been recently buzzing in the M&A forums as its shares experienced a staggering surge following a groundbreaking acquisition proposal from the company's founder, chairman, and CEO, Laurent Junique. The proposal entails Junique's intention to acquire all outstanding ordinary shares of TDCX at a noteworthy price of $6.60 per share or American depositary shares in cash. The bold move by Junique has undoubtedly captured the attention of investors, prompting speculation and excitement about the future of the company. This unexpected development raises critical questions as to the recent financial performance of the company and the drivers of future growth especially in the event that the buyout proposal does not go through. Let us take a closer look and find out!
What Does TDCX Inc. Do?
TDCX Inc., a dynamic company and its subsidiaries, specialize in delivering outsourced contact center services to a diverse range of blue-chip and technology companies across the globe, including locations like Singapore, Malaysia, Thailand, the Philippines, Japan, China, Spain, India, Colombia, South Korea, and Romania. With a comprehensive suite of digital customer experience solutions, TDCX caters to various industry verticals such as travel, hospitality, digital advertising, media, fast-moving consumer goods, technology, financial services, fintech, government, non-governmental organizations, gaming, e-commerce, and education. The company extends its services beyond customer support to encompass after-sales service, sales, and digital marketing, contributing to its clients' success in both business-to-consumer and business-to-business markets. TDCX further distinguishes itself through content monitoring and moderation services, fostering a secure online environment for social media platforms. Additionally, the company provides workspaces, human resource, administration services, and omnichannel customer experience solutions, including end-user support and troubleshooting for software and consumer electronic devices. Formerly known as TDCX Capital Pte Ltd, the company rebranded as TDCX Inc. in January 2021, and it operates as a subsidiary of Transformative Investments Pte Ltd.
Diversification & Client Growth
TDCX's robust performance in Q3 2023 highlights significant growth opportunities through client diversification. Despite a challenging macroeconomic environment, the company witnessed a 51% year-on-year increase in revenue from clients outside the top 5, showcasing a successful strategy to broaden its customer base. Furthermore, the total client count rose by 31% to 94 clients by September 30, 2023, emphasizing the effectiveness of TDCX's business development efforts. The reduction in client concentration, with the top 2 clients contributing 47% of the quarter's revenue compared to 56% in the same period last year, demonstrates the company's pledge to minimizing risk and increasing stability. This diversification not only contributes to revenue growth but also positions TDCX as a resilient player in the customer experience industry, offering a strong foundation for future financial success.
Geographic Expansion & Revenue Growth In New Markets
TDCX's strategic geographic expansion over the last two years is proving to be a substantial driver of revenue growth. The company's revenue from new geographies surged fivefold in Q3 2023 compared to the same period in the previous year. Notable successes include strong performances in Korea, where new sites revenue expansion has been outstanding, and promising early developments in Indonesia and Vietnam. The expansion into Latin America, particularly in Brazil and Colombia, has been marked by successful campaigns, with TDCX emerging as one of the top-performing sites globally based on customer satisfaction. This geographical diversification not only enhances revenue streams but also contributes to TDCX's long-term stability and resilience in the face of evolving market conditions.
Strategic Investments in AI & Consulting Capabilities
TDCX's aim to innovation and efficiency is evident in its strategic investments in artificial intelligence (AI) and consulting capabilities. The launch of TDCX AI reflects the company's dedication to staying at the forefront of industry trends. The development of AI solutions for clients, such as the AI-enabled sales catalyst accelerator for a digital advertising client, exemplifies TDCX's ability to provide actionable solutions that enhance productivity and efficiency. The company's deep operational experience and expertise in complex customer interactions position it as a valuable strategic advisory partner. As TDCX continues to leverage AI to improve outcomes in campaigns, the potential for scaling the business to greater heights becomes increasingly evident. This investment aligns with TDCX's goal of not only meeting client needs but also anticipating and addressing future challenges in the customer experience landscape.
Source: Yahoo Finance
We can clearly see that as news of the proposal broke, the stock market responded with enthusiasm, propelling TDCX’s stock price, also emphasizing the perceived value in Junique's offer. A special committee, comprising independent and disinterested directors, is set to scrutinize the details, highlighting the importance of a comprehensive evaluation before drawing any conclusions. TDCX is currently valued at an EV/ Revenue multiple of 1.25x and an EV/ EBITDA multiple of 5.50x which are both very reasonable. The company is highly profitable (a 16.7% net margin) and generating heavy cash flows from operations justifying the rationale behind the buyout. Given all these metrics, we believe there is a very good chance the company will become an LBO/ MBO candidate whether or not this acquisition goes through. There is little premium to be made for M&A arbitrageurs from the current deal but in case the deal fails, the company could be an interesting investment from a long-term standpoint.