Ask the Network: The Outlook for Business Services M&A

Welcome to “Ask the Network,” where we leverage the expertise of Axial members to answer questions submitted by middle market CEOs. 

This week, we posed an industry-specific question to advisors and investors on the network:

“What’s your outlook for business services M&A for the rest of the year?”

Craig Dickens, Merit Harbor Group

“Our outlook is very positive for business services M&A for the remainder of 2015 and beyond, as the economy shifts even further toward tech-enabled services, as well as the continuing models that support service-based customer interactions, i.e., subscription based services, SaaS, cloud, remote services, virtual workforce etc.

“Even in an environment where capital is readily available at historically low cost, many investors are looking at asset-light service businesses not only because of the projected growth prospects in business services, but also as a hedge against increased interest rates which may be on the horizon.

As an M&A intermediary, our highest and best work with services companies is to help business owners capture the intangibles which are often very difficult to monetize in traditional service businesses. However, we believe the time is ripe to consider selling with the tailwinds and increase in multiples in business services M&A transactions.”

Chris Geier, Sikich Investment Banking

“Record multiples at the top of the market with transactions such as UPS’s acquisition of Coyote Logistics and Stericycle’s purchase of Shred-it will positively affect both deal volumes and values for the business services industry in the middle market.

Business services transactions represented a significant percentage of total M&A activity during the first half of 2015, and heavy competition from strategics and private equity will continue to make conditions favorable for consolidation through the end of the year. Going forward, I expect to see the most aggressive bidding wars for midsize and larger value-added distribution businesses.”

Craig A. Castelli, Caber Hill Advisors

“The robust appetite for business services M&A has been fueled by strong demand from both private equity and strategic buyers along with the overall momentum of the markets. While macro and political factors may influence the markets in the next 9-12 months, we have no reason to expect material changes between now and the end of the year. Of particular interest are industries in the midst of consolidation cycles, specifically service providers to the healthcare, legal, and financial services sectors, as consolidating industries tend to be somewhat immune to short-term market conditions. We’re specifically bullish on revenue cycle management, healthcare staffing, cyber security (technology and consulting), electronic discovery, and janitorial services.”

Douglas Hendrickson, MidCap Advisors

“We expect M&A within the business services sector to remain very strong for the remainder of 2015 and into 2016. Organic growth within this sector remains below acceptable levels for CEO’s, so M&A will continue to be an important element of achieving growth objectives for business services companies.”