At the outset of the COVID-19 healthcare crisis, economic instability and the near-certain negative impact on global markets resulted in a significant sell-off across all industries in Q1 2020. Entering Q2 2020, improving economic and COVID-19 case data have driven a market upturn, with global indices rebounding from their first quarter lows. The S&P 500 and NASDAQ have increased 21 percent and 31 percent, respectively, from Q1 2020. Similarly, the MSCI ACWI Index, which represents the performance of 23 developed countries and 24 emerging markets, gained 19 percent in Q2 2020, recovering from a low of negative 21 percent in Q1 2020.
Business Services subsectors continue to be well-positioned to weather the impacts of the pandemic, many serving as essential businesses to their customers and leveraging technology to ensure business continuity. Individual subsectors have displayed varying performances within the overall market:
- Human Resources Outsourcing was significantly impacted in Q1 2020 but has rebounded sharply, reaching an 11.5x EBITDA multiple in June. This represents a nearly 60 percent increase over Q1 2020 and is now at levels last seen during Q1 2019. Positive May and June jobs data, translating into reduced unemployment levels and lower weekly jobless claims, have driven this resurgence. Human resources and staffing providers equipped with premier digital solutions and serving essential end markets have performed at levels above the market average.
- Within the Contact Center subsector, most service offerings have been deemed essential. Market participants that invested in technology and digitalization have been able to weather the storm by rapidly moving brick-and-mortar agents to serve customers from home and by continuing to offer multiple communication channels. Technology has strongly supported the expansion of the work-from-home model, making increased levels of remote work likely a permanent element of the “next-generation” contact center. The sector EBITDA multiple expanded by 6 percent in Q2 2020 over Q1 2020 and only slightly trails Q1 2019 levels.
- Fixed Asset Management has shown resilience, with a modest 5 percent contraction in Q1 2020 and, entering the second quarter, has gained 1 percent. Investors see safety in the sector given the essential nature of services, such as cleaning and maintenance as well as other related non-discretionary facility services, during times of uncertainty.
BGL’s Business Services Group remains dedicated to keeping you informed of developments in the Business Services market as the economy reopens. We are actively working with clients to identify the appropriate financing and M&A strategies to support long-term value creation.