Major indices have recovered sharply from COVID-induced volatility to close the year at all-time highs, with the S&P 500, DJIA, and NASDAQ registering annual returns of 16.3%, 43.6%, and 7.2%, respectively. Investors remain cautiously optimistic heading into 2021, with positive sentiment bolstered by the expectation of more widespread COVID-19 vaccine deployment and potential additional economic stimulus.

Business Services subsectors have demonstrated resiliency through Q4 2020 with strong investor demand evidenced in EBITDA multiple expansion. EBITDA multiples in the Human Resources Outsourcing and Fixed Asset Management subsectors reached five-year highs.

  • The median EBITDA multiple in the Human Resources Outsourcing subsector increased to 13.2x in Q4 2020, which is 30% above the previous quarter and nearly double the Q1 2020 low. Multiple expansion can be attributed to a strengthening jobs market. Unemployment claims fell from an April high of 14.7% to 6.7% in November, with improving trends in the unemployment rate serving to ease investor concerns that widespread job losses may be irrecoverable. The subsector is poised to gain downstream utility from the post-pandemic shift towards enhanced remote workforce flexibility.
  • In the Contact Center Services subsector, the median EBITDA multiple increased 6% to 9.4x in Q4 2020, which represents a 15% increase from Q1 2020, illustrating minimal COVID impact. The transformative shift to the work-from-home model has had a positive impact on many contact center businesses, particularly in the areas of recruiting, attrition, and job performance, acting as a win-win for both businesses and their customers.
  • The median EBITDA multiple for the Fixed Asset Management subsector reached an all-time high of 14.6x in Q4 2020, representing increases of 22% from Q3 2020 and 54% from Q1 2020. The improving sector outlook is due in large part to the reopening of the economy and subsequent resumption of employment levels.

The broader M&A market returned to robust levels of strategic and financial buyer activity in the second half of 2020 and finished strong in the fourth quarter. Buyer appetite, low interest rates, and surplus capital provide the supports for continued positive momentum entering 2021.

The BGL 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 remains committed to informing clients of the current state of the Business Services market and discussing M&A strategies and financing alternatives.