BGL Business Services Quarterly Update

Q3 2021

Major public equity indices continued to rise over the last three months, reaching record highs during Q3 2021. Markets were buoyed by the Federal Reserve’s continued commitment to accommodative monetary policy, the residual effects of COVID stimulus, and hopes of a return to pre-pandemic economic activity.

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The Business Services sector continued to see gains above the broader market, with the Contact Center Services and Human Resources Outsourcing subsectors outperforming the S&P 500 by 14.6% and 11.8%, respectively, in Q3 2021.

  • The median EBITDA multiple in the Human Resources Outsourcing subsector contracted modestly, from 14.6x in Q2 2021 to 14.4x in Q3 2021; however, it remains 24.9% above the Q3 2020 level. The downtick appears to be driven by margin compression in the industry resulting from labor market constraints and inflation concerns. Multiple expansion relative to Q3 2020 has been propelled by significant employment gains in areas that were more negatively impacted by COVID-19 (e.g., leisure, hospitality, and construction) and a stabilization in economic activity relative to 2020.
  • Within the Contact Center Services subsector, the median EBITDA multiple was 8.5x in Q3 2021, representing a 4.5% decrease from Q3 2020. As with other sectors, EBITDA multiples were slightly compressed due to labor shortages, increased labor costs, and inflation concerns. The shift to the work-from-home model has enabled many contact center businesses to pivot effectively during the pandemic, with those serving industries such as Financial Services, eCommerce, and Healthcare benefiting at an even higher overall rate.
  • The median EBITDA multiple of 14.4x for the Fixed Asset Management subsector remains near a historical high and is 20.3% above the Q3 2020 level. The essential nature of services, in addition to the increased importance of cleanliness, security, and recurring maintenance, are underpinnings for continued strength in this subsector.

Positive equity market performance and ample capital availability have continued to serve as catalysts for increased activity in business services M&A, with both corporate and private equity buyers competing aggressively for high-quality assets. Heading into Q4 2021, market indicators suggest that the high level of M&A activity will continue — and at an accelerated pace — as companies look to transact ahead of a potential increase in the capital gains tax rate.

BGL’s Business Services Quarterly Update highlights public company operating metrics and M&A activity in the Human Resources Outsourcing, Contact Center Services, and Fixed Asset Management subsectors. BGL’s business services investment banking team remains committed to informing clients of the current state of the market and discussing appropriate business services M&A strategies and financing alternatives.

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