Managing Directors Derek Lewis and Bob Baltimore report strong investor interest in workforce solutions as companies embrace outsourcing and grapple with hiring challenges. As 2019 unfolds, Lewis and Baltimore are closely watching core metrics such as EBITDA and revenue growth across business services companies. They are also tracking the impacts of artificial intelligence and robotic process automation on a variety of business processes, as well as the challenges presented by hiring and retaining talent.
Looking ahead, Lewis and Baltimore emphasize the importance of “sticky” customer relationships, citing their power to help companies weather uncertain economic conditions. Read on for their full comments on the outlook for business services in 2019.
Within your industry, which sub-sectors do you anticipate experiencing the highest levels of interest? Why?
Lewis: In business services, we’re seeing a lot of interest in companies that provide workforce solutions and critical, yet non-core outsourced services. Talent, particularly in a good market, is a pain point for a lot of organizations. Plus, companies are putting fewer employees on their own balance sheets, and are instead using contractors and outsourced service providers to a greater extent.
Which metrics are you watching most closely in relation to the performance of companies in your industry?
Baltimore: We work with many different types of companies, so the particular metrics really vary. In general, though, we look at revenue and EBITDA growth, and whether that growth is coming organically or through acquisitions.
Which industry-specific trends or issues are you watching most closely?
Lewis: Artificial intelligence and robotic process automation is rapidly evolving. Factories have already become automated, and that’s now spreading to more white-collar occupations, particularly those that involve manual, repetitive tasks.
Which geopolitical and/or macroeconomic issues are most relevant to your industry? Why?
Baltimore: The labor pool issue is top-of-mind in business services. When you’re close to full employment, which we are, business services companies have to be very good at recruiting, training, and retaining talent.
Given the length of the current bull market, what should private companies, private equity groups and strategic buyers be thinking about?
Lewis: Private companies should be trying to create “sticky” customer relationships versus selling a one-off service or product. Companies that sell multi-faceted products make switching to a new provider difficult.
If I were a private equity group looking for a new platform, I’d be looking for companies that are selling critical services to their clients, and are less impacted by changes in the economy.
Baltimore: Strategic buyers ought to be thinking about what they are really good at and looking for acquisitions that are strategically core to them. Likewise they should consider divesting what’s not critical to their strategic plan. Those non-core businesses are a distraction of management time and resources. They should also be thinking about how to build out their solution sets to make them indispensable to their customers.
Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?
Lewis: Again, it’s that ability to be a valuable partner to your customers, and to be so well integrated with them that the relationship will survive tougher times.