Business Process Outsourcing Market Update – December 2022

Outsourcing Demand Holds Strong Despite Economic Uncertainties

Capstone Partners released its December 2022 Business Process Outsourcing (BPO) & Contact Centers Market Update, reporting that organizations have increasingly utilized outsourced services to offset high labor costs and bolster decentralized workforces amid the current recessionary period. The tight labor market following the height of COVID-19 has led to a swift recovery in sector public company valuations and a resurgence of merger and acquisition (M&A) activity in the space.

M&A volume in the Business Process Outsourcing Market has surged through year-to-date (YTD), outpacing 2021 by 30% during the same period. Strategic buyers’ strong profit margins have contributed to heightened activity as surplus investment capital can be deployed towards synergistic acquisitions targeting middle market businesses. Armed with $1.2 trillion in dry powder, private equity firms have increasingly pursued target companies in the sector. Successful exits of sector portfolio companies have also attracted elevated sponsor interest in the space. Strategics and private equity firms have primarily targeted technology-enabled contact centers and BPO services providers to bolster customer experience (CX) solutions for clients in high-growth end markets. Among the active buyers, TTEC (Nasdaq:TTEC) has completed 14 acquisitions since 2011 to fortify its digital CX solutions and provide enhanced outsourced services to the Communication, Media, & Technology, Healthcare, Financial Services, and Diversified Consumer Goods industries. In a recent transaction, TTEC acquired Faneuil in April 2022 for an enterprise value of $167 million. Faneuil’s citizen experience and smart city assets are poised to accelerate TTEC’s growth strategy in the Public sector.

Notable transaction activity in the sector includes the Capstone-advised sale of Charter Impact to Mercator Search Group (June) and the Capstone-advised sale of Bolton Remote to BV Investment Partners-backed SupportNinja (March). Capstone’s recent track record demonstrates private equity firms’ willingness to target middle market sector players and implement buy-and-build strategies to inorganically scale portfolio businesses and provide a favorable return on their investment.

Also included in this report:

• How sector public company margins have withstood recent economic turmoil.
• Which end markets are driving demand and significant levels of sector deal activity.
• A breakdown of sector M&A purchase multiples compared to the broader Business Services industry.
• How sector participants can optimize operations to achieve premium M&A valuations.