Business services M&A trends and sector update

An industry of extreme breadth and depth, business services represents one of the largest sectors of the global economy. In the US alone, the business services sector consists of about 400,000 businesses (single-location and establishments of multi-location companies), with a combined annual sales estimated at about $870bn¹. Much of this is driven by the fact that the industry generally consists of asset-light, people-heavy businesses, providing low barriers to entry due to lower capital requirements.

As these companies mature and competition increases, globalization continues to drive M&A activity in the sector as service providers expand overseas to access and build market share in higher growth and underdeveloped regions of the world. Moreover, as technology continues to drive value within the industry, and outsourcing becomes more and more prevalent, private equity continues to strengthen its interest in the sector, particularly as most lenders have embraced asset-light business models. In fact, of the 112 transactions Livingstone has completed over the last 18 months, 31 (27%) have been in the business services space.

Inside the numbers
Globally, mid-market M&A deal volumes across the business services sector were up in the second quarter of 2019, reaching 847 vs 820 in the first quarter, a 3.2% increase. Across all sectors, business services has been the most active sector this year. Year-over-year, however, business services deal volumes were down 9% in the first half of 2019 at 1,667 vs 1,800 during the same period in 2018.

Regionally, North America continues to be a popular home for business services deals with 947 deals in the first half of the year versus 1,021 during the same period last year, followed by the UK & Ireland (240 vs 286), the Nordics (166 vs 177), the Germany-Austria-Switzerland DACH region (140 vs 137), Asia-Pacific (92 vs 104) and Iberia (82 vs 75).

Looking ahead
Looking ahead to the remainder of the year, outlook remains strong. The sector has plenty of momentum across Livingstone’s core geographies, which is driven by economic growth and more widespread adoption of outsourcing as a means of reducing fixed costs. Unemployment is at record lows in the US, and most of Europe is also enjoying fairly strong levels of employment, forcing many businesses to look outside their four walls to meet business requirements, particularly non-core operations. Furthermore, central banks continue to cut rates from historically low levels and appear to be moving towards more easing.

However, potential disruptive factors abound that could have a severe impact on the global economy, including trade wars, real wars and political uncertainty. Brexit, though now long anticipated, could still have unpredictable consequences, particularly for the UK market.  We also anticipate sellers to accelerate plans for exits ahead of elections in the US in 2020.

For now, however, the deals continue and with sector valuations at near-record highs, now is the ideal time to consider selling your business.

*Livingstone analyzed deal volumes from North America, Iberia, Asia Pacific, UK & Ireland, Nordics and DACH regions. 

1. https://www.gregorypearl.com/business-services-industry-trends

This article was originally published in the 2019 Global Business Services Report.

Click here to read the full report.