Outsourcing deals could boost FTSE by £20bn

Companies that announce outsourcing projects to the market can increase their
sector share price by almost 2% compared with those that don’t, adding an
estimated £20bn of additional shareholder value to the FTSE all-share market

backs Wales for outsourcing success

A study carried out by LogicaCMG and the Centre for Economic and Business
Research, entitled ‘outsourcing for corporate value’, analysed historical stock
market data of companies within seven sectors that announced outsourcing deals
against those that had not.

It revealed that after four weeks of outsourcing deals being announced,
companies that had stated their outsourcing projects to the market performed on
average 1.7% higher in stock value against those that had not.

Announcing the research findings this morning, Guy Warren, managing director
of IT services firm LogicaCMG said that with UK market capitalisation in excess
of £1,300bn this represented a ‘significant’ equivalent of £20bn worth of
additional shareholder value.

‘There is a good chance of increasing company profits by carefully announcing
outsourcing deals. Good companies also outsource and there is a significant
opportunity for companies and the economy to capitalise on outsourcing.’

The report discovered that in five out of the seven sectors, companies that
outsourced also outperformed their peers and boosted share price. The retail
sector benefited the most, with a 10% leap in share price performance one month
after announcing outsourcing deals. The leisure sector reached just over 6%,
while the energy and utilities industry saw a rise of just under 2%.

The study also analysed the economic value from outsourcing and calculated
that if UK companies increased outsourcing by 52% by 2010, over £9.9bn in
additional stock market value would be created. LogicaCMG said the UK
outsourcing market currently stands at around £250bn and could reach around
£370bn by 2010.

Mark Pragnell, managing director of CEBR said that companies that were
performing well in the market were ‘also outsourcing’ and that even the two
sectors that were found to be ‘underperforming’ (telecoms and banking and
insurance) had improved after making outsourcing declarations.

Phil Morris, director of consulting at Morgan Chambers, backed up the
LogicaCMG findings and said that outsourcing in the FTSE100 generated on average
a positive share price movement of 4.9%.

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