BGL Business Services Quarterly Update

Q4 2021

Major public equity indices recovered from a temporary decline in early December to end 2021 up over 20% year-over-year. Market sentiment was buoyed by easing labor market constraints, receding concerns over the effects of COVID, optimism around consumer spending, and the Federal Reserve’s commitment to slowly implement rate increases.

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Managing Director

The Business Services sector continued to see gains above the broader market, with the Human Resources Outsourcing and Contact Center Services subsectors outperforming the S&P 500 by 7.3% and 4.0%, respectively, in 2021.

  1. The median EBITDA multiple in the Human Resources Outsourcing subsector contracted modestly from 14.4x in Q3 2021 to 13.8x in Q4 2021. However, this is still an impressive 91.2% above the Q4 2020 level. The downtick appears to be driven by margin compression resulting from labor market constraints and inflationary conditions. Multiple expansion relative to Q4 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.                                                           
  2. Within the Contact Center Services subsector, the median EBITDA multiple was 8.4x in Q4 2021, representing a 10.7% decrease from Q4 2020. Like other sectors, EBITDA multiples were slightly compressed due to labor shortages, increased labor and recruiting costs, and inflationary conditions. 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.                                                                                                   
  3. The median EBITDA multiple for the Fixed Asset Management subsector of 15.0x remains near a historical high and is 3.0% above the Q4 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 M&A activity in the Business Services sector, with both corporate and private equity buyers competing aggressively for high-quality assets. Market indicators suggest that the high level of M&A activity will continue in 2022.

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

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