Major public equity indices have continued to decline, ending Q3 2022 down over 21% year-over-year. High inflation, corresponding interest rate hikes, continued labor shortages, supply chain disruptions, the lingering effects of COVID-19, and global uncertainty surrounding the Russian invasion of Ukraine all contributed to investor concerns about the overall health of the economy.
Business Services subsectors have declined, but at a lower rate than the public markets, providing higher degrees of stability to investors relative to the overall market. All three BGL Business Services composite indices exhibited year-over-year declines yet are outperforming the S&P 500 by an average of almost 8%.
- Within the Human Resources Outsourcing subsector, the median EBITDA multiple was 7.6x in Q3 2022, representing a 28.3% decrease from Q2 2022. This reduction was driven by broad economic factors, including inflationary conditions and rising interest rates, which are negatively affecting employment opportunities. Decreased multiples in the subsector were also due to the stagnation of the unemployment rate, which did not materially decrease throughout the quarter.
- Within the Contact Center Services subsector, the median EBITDA multiple was 9.6x in Q3 2022, representing a 19.3% decrease from Q2 2022. Despite growth trends such as the increased adoption of cloud- and AI-based solutions and ongoing technological advancement of industry hardware and software, macro conditions are having a greater negative impact on the subsector.
- The median EBITDA multiple for the Fixed Asset Management subsector increased from 12.4x in Q2 2022 to 13.5x in Q3 2022. This increase was driven by the subsector’s resistance to economic uncertainty given that Facility Maintenance and Manned Security are deemed to be essential services which are in demand even in a recessionary environment.
Despite declining equity markets, the Business Services sector continues to be attractive in the M&A market compared to other sectors. Ample capital availability has continued to serve as a catalyst for stable M&A activity, with both corporate and private equity buyers competing aggressively for high-quality assets. Moving into Q4 2022, market indicators suggest that sector transaction activity will continue to outperform the broader market.