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Analysis

Business services M&A update: Q2 2019

We believe, companies are seeing a focus on employees and their professional happiness and growth. For those in the business service industry, there has been a trend in investing in employees or the potential workforce to help ensure they have the tools needed in and out of the workplace to succeed mentally and professionally. This business services mergers and acquisitions (M&A) update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the business services industry.

Business services trends

  • Fragmented audiences present short-term hurdles and long-term growth1The rise of digital media, coupled with the increased ability to consume media through multiple outlets, has increasingly fragmented advertising audiences. Although this trend presents a short-term hurdle for the industry, this fragmentation is ultimately anticipated to pose an opportunity in the coming years. Growing audience fragmentation requires clients to purchase advertising space from a greater number and variety of platforms to reach consumers. This is expected to drive growth for niche agencies that specialize in digital advertising, leading to further acquisition activity as large firms seek innovation through inorganic means.
  • Multi-tasking is key in business process outsourcing2: Business process outsourcing (BPO) of the past was largely synonymous with call centers. This notion has become outdated as BPO firms have expanded their product and service offerings to web design, human resources, accounting, coding, and various other tasks. BPO operators continue to invest in ancillary service offerings, such as mobile applications, cloud computing, and digital technology. As with the broader business services industry, technology is a primary disruptor in the BPO sector. The trend of expanding to a more comprehensive suite of outsourced solutions has paired well with significant startup growth, as growth-stage companies with small budgets increasingly depend upon BPOs to complete tedious tasks with cost-effective labor.
  • Consulting firms look to capture advertising market share3,4: For years, the Big Four have invested in marketing services, acquiring ad agencies, and hiring executives in a bid to capture market share in the advertising sector, estimated to currently exceed $70 billion. These investments come simultaneously as marketers experience pressure to modernize their operations and rethink the way they interact with consumers, a task that requires business and strategy support that goes beyond traditional advertising. In recent years, leading advertising agencies have moved in the reverse direction by acquiring business consultancies. Although consulting firms are still developing the soft skills that are unique to ad agencies, the Big Four’s broad resources and extensive relationships with executives will likely act as a competitive advantage into the future.
  •  A new emphasis on workforce development5: Last summer, President Trump signed an executive order “aimed at spurring new investments for training Americans to help them secure jobs,” and created a National Council for the American Worker. This policy is driving investment into work-based learning opportunities and the promotion of alternative pathways in education. Emily Bouck West, deputy executive director for Higher Learning Advocates, said, “For a long time, workforce development has been a siloed conversation disconnected from high education. But students—learners—don’t see it that way. Stakeholders and policymakers should work to build stronger linkages between these two systems and enable students to participate and gain the skills they need with an exit ticket to their next career step.” There is an emphasis on investment to increase the capacity and accessibility of the workforce pipeline.
  • Consumerizing the employee experience6: Human Resources (HR) is becoming more of a consumer experience as employees demand opportunities, resources, and recognition analogous to consumer products and services. Similarly, employees desire services on-demand that are simple and easy to access. The integration of mobile applications for human resource services is becoming a necessity compared to a luxury, and HR services may produce the greatest results when tools are designed to minimize process while delivering personalized and integrated resources. As with many business service trends, technology is expected to be the primary enabler of innovation and progression in the human resources industry.
  • Quantum computing and AI to transform transaction processing7: Quantum computing and artificial intelligence (AI) have the potential to impact the transaction processing industry in many ways. Quantum computing can improve the efficiency of data processing and transaction settlement and perform modeling and security functions. JP Morgan Chase & Co. and Barclays PLC have been working with International Business Machine’s quantum computing tools, looking to the future for practical applications. Many firms are now applying AI to regulatory compliance tasks in an effort to reduce costs and increase transparency. The major exchange infrastructure on Wall Street is already almost entirely managed by automated machines. Industry experts predict this trend will continue well into the future.

This newsletter is a periodic compilation of certain capital markets information. Information contained in this newsletter should not be construed as a recommendation to sell or a recommendation to buy any security. Any reference to or omission of any reference to any company in this newsletter shall not be construed as a recommendation to sell, buy, or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. This newsletter is published solely for the general information of clients and friends of Deloitte Corporate Finance LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known risks, uncertainties, and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. We and our affiliates and related entities, partners, principals, directors, and employees, including persons involved in the preparation or issuance of this newsletter, may from time to time have “long” and “short” positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. The companies mentioned in this newsletter may be: (i) investment banking clients of Deloitte Corporate Finance LLC; or (ii) clients of Deloitte Financial Advisory Services LLP and its related entities. The decision to include any company for mention or discussion in this newsletter is wholly unrelated to any audit or other services that Deloitte Corporate Finance LLC may provide or to any audit services or any services that any of its affiliates or related entities may provide to such company. No part of this newsletter may be copied or duplicated in any form by any means, or redistributed without the prior written consent of Deloitte Corporate Finance LLC.

References

IBISWorld, “Industry Outlook,” https://clients1.ibisworld.com/reports/us/industry/industryoutlook.aspx?entid=1433, accessed July 14, 2019.
2 Octopus Tech, “Business Process Outsourcing: What to expect in 2019,” https://www.theoctopustech.com/business-process-outsourcing-what-to-expect-in-2019, accessed July 13, 2019.
3 Alexandra Bruell, “Consulting Firms Make Inroads into the Business of Ad Agencies,” https://www.wsj.com/articles/consulting-firms-make-inroads-into-the-business-of-ad-agencies-11560823320, accessed July 13, 2019.
4 S&P Capital IQ, https://www.capitaliq.com, accessed July 13, 2019.
5 Oesch, “Workforce Development in 2019: US Policy and Practice,” https://trainingindustry.com/articles/workforce-development/workforce-development-in-2019-u-s-policy-and-practice/, accessed July 13, 2019.
6 Ceridian Market Perspectives, “2019 Human capital management trends,” https://www.ceridian.com/resources/human-capital-management-trends-2019, accessed July 14, 2019.
7 Andrew Medal, “4 Trends That Will Rewire the Inner Workings of the Fintech Industry,” https://www.stamfordadvocate.com/business/article/4-Trends-That-Will-Rewire-the-Inner-Workings-of-13998179.php, accessed July 15, 2019.

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