THE YEAR OF CONSOLIDATION IS UNDERWAY
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First quarter results each year have typically set the trend for the upcoming year, however, 2022 may be different. In 2021 the Outsourced Business Services (OBS) sector, which is defined by CAS as including Accounts Receivable Management (ARM), Customer Relationship Management (CRM) and Revenue Cycle Management (RCM), generated 92 deals representing more than $11 billion in total deal value in the first quarter. This led to a record-breaking year (according to CAS done deal statistics) that produced 232 transactions and almost $60 billion in deal value. 2022 on the other hand has started off far more anemic with Q1 results showing 37 transactions and $2.5 billion in total deal value. While this drop off in deal activity may indicate a sign of 2022 being less robust than 2021, we at CAS do not believe this is the case. Rather, Q1 2022’s results indicate a trend that we predicted in our 2021 year-end newsletter - M&A deal activity in 2022 will be driven by larger OBS companies acquiring smaller ones.
As we are moving through Q2 and preparing for the second half of 2022, we are seeing first-hand the onset of another consolidation trend underway within the OBS sector. With many financially backed OBS companies seeking to maintain and enhance their growth trends, and business volumes from clients either stabilizing or starting to grow but slower than expected, these larger OBS companies are seeking to achieve their growth targets via strategic acquisitions. The challenge for them recently has been finding good acquisition targets at reasonable valuations. Like any other active M&A market, 2021’s deal activity produced aggressive acquisition multiples for attractive businesses. While we have not seen a significant change yet in M&A multiples in 2022, we have seen a drop in M&A activity involving large businesses as sellers. We believe this trend may continue throughout 2022. However, we do expect deal volume to increase moving forward into the second half of this year, driven by both strategic buyers seeking acquisitions, and smaller/mid-sized OBS company owners seeking to exit.
The key trends that are motivating owners to consider a sale this year include increasing expenses associated with regulatory compliance, challenges with organic growth, and concerns related to the overall macroeconomic landscape. This last trend involves inflation, rising labor costs, challenges to hire staff, and increasing interest rates – more expensive lines of credit.
We believe this current economic/regulatory cycle will impact the OBS sector for the next 2-3 years, during which business volumes will gradually increase, but like other cycles there will be winners and losers. Small and mid-sized business owners need to determine their risk tolerance for living through this cycle and how well they are and will be positioned to survive it and thrive once conditions change.
For those business owners who wish to confidentially discuss their options, we at CAS are available and look forward to speaking with you.
Sincerely,
Mark Russell
Managing Partner
Phone: 301-404-5757
Email: mrussell@corpadvisorysolutions.com
LinkedIn
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After completing more than 130 mergers and acquisitions over the last 20 years, Corporate Advisory Solutions (CAS) is pleased to announce its new exit preparation strategy service line, focused on helping business owners and executives of global Outsourced Tech-Enabled business services companies prepare for sale.
“Growing and managing a business is an incredibly rewarding experience. Your exit should be equally as thrilling and profitable,” said Michael Lamm, Managing Partner at CAS. “CAS’s Exit Prep Service puts our client’s best foot forward with an efficient and effective exit strategy.”
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UPCOMING INDUSTRY CONFERENCES
- SaaS & Tech Enabled Services DealSource
June 1, 2022, Philadelphia, PA
- CCW Las Vegas
June 20-23, 2022, Las Vegas, NV
- HFMA 2022 Annual Conference
June 26-29, 2022, Denver, CO
- ACA International Convention & Expo
July 20-22, 2022, Orlando, FL
- RMAi 2022 Executive Summit
August 2-4, 2022, Elkhart Lake, WI
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ACCOUNTS RECEIVABLE MANAGEMENT (ARM)
Charge off volumes at historic lows coupled with regulatory overhaul leading to market dynamics.
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Throughout Q1 2022, the Accounts Receivable Management industry experienced reduced M&A volume when compared to Q4 2021 and Q1 2021, by both the number of deals completed and the deal volume per CAS. The ARM industry is weathering a period of reduced placements, a difficult macro-economic environment, and new regulatory and legislative challenges. As such, most of the companies have been focused on internal operations and less focused on inorganic growth. However, the situation should improve over the coming months given the underlying impacts of the broader economy.
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NOTEWORTHY ARM TRANSACTIONS
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HEALTHCARE REVENUE CYCLE MANAGEMENT (RCM)
Consolidation and strategic mergers to increase value proposition as hospitals and doctors scrutinize financial performance beyond the COVID-19 pandemic.
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The RCM vertical remained active in Q1 2022 from an M&A perspective, although deal volume and deal count were reduced compared to Q1 2021 per CAS. There is a significant degree of interest in the revenue cycle from industry participants from hospitals/health systems acquiring downstream vendors and value providers, strategic buyers looking to expand their revenue cycle offerings, and financial sponsors the like.
Hospitals are beginning to develop venture opportunities or partner with equity sponsors (predominantly venture capital) to make investments in the healthcare space, but also in areas impacting the revenue cycle. As hospitals are experiencing a great deal of financial stress, they are forced to innovate and focus on efficiency. In recent times, this comes in the form of applying technology to aid either a human or a process. The revenue cycle, given its labor-intensive nature, is ripe for continued digitization and a shift to automation. Hospitals understand this and given their inorganic growth strategies, can often be a test environment or large client, all while controlling the expense even greater via ownership. Also, CAS has been observing a recent trend of hospitals making strategic hires from the for-profit sector, specifically overseeing functions such as vendor management or RCM outsourcing solutions. Key decision-makers coming from the for-profit side of the industry may have reverberations throughout the sector and provide opportunities that were once more difficult to penetrate.
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NOTEWORTHY RCM TRANSACTIONS
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CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
Continued tailwinds as shift to digital/omni-channel solutions and lower cost delivery, while contending with labor market dynamics, remains top of mind.
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In Q1 2022, the customer relationship management (CRM) vertical experienced a pull-back in M&A volumes, down from the historic trends in FY 2021 in both deal volume and count per CAS. The CRM vertical is continuing its maturity into non-voice solutions, driving a strong push across a variety of industries in the same way. Soon, the days of speaking to an agent regarding an issue will be the exception. Live chat (leveraging intelligence and automation) will be part-CPU, part-human enabled (with humans dealing with the incredibly nuanced issues). This inevitable change is leading to a wealth of investor appetite for anything “omni-channel”. The idea and intention of every company are to have multiple avenues to correspond with past, active, and future customers.
There is a continued shift from labor-intensive businesses to drive costs down. One way this can be done is by moving to lower cost of labor delivery centers. We have seen a continued push and exploration in the use of near-shore (i.e., CALA Region) and off-shore (India, Philippines, South Africa) resources to augment labor. A trend that CAS is watching closely is a change in wage rates across different near-shore/off-shore resources. Certain geographies bring unique characteristics and being aware of said characteristics when partnering or acquiring.
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NOTEWORTHY CRM TRANSACTIONS
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DEBT CONSOLIDATION COMPARISON SHOPPING AS A VALUE PROPOSITION FOR DEBT RELIEF SERVICE PROVIDERS
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The best debt relief service providers don’t only provide exceptional customer service and transparent pricing. They also provide valuable financial education and help clients find the best debt management option for their circumstances.
Partnering with financial service networks, such as SuperMoney Monetize allows debt relief companies to provide alternative debt management options, educate users on how to manage their credit, and create additional sources of revenue.
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WELCOME TO A NEW GENERATION OF ARM SOFTWARE, SMAX TECHNOLOGIES SCOLLECT!
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From the beginning, we have strived to be different from other software providers in this industry. Our team has been in almost every seat inside of an Agency from Collection Agent to Owner and has used this experience to build software that strives to give you the big boy features with the simplicity of smaller less feature reach solutions.
SCollect, allows for streamlined account management. The software gives you powerful access to things like, Work Flows, Integrations, OMNI Channel Communication and even document storage. Imagine loading accounts to your system and being able to set a plan for those accounts from start to finish. SCollect shows you a breakdown of all your expected campaigns and instantly allows you to start pushing data to where it needs to go to keep on flow.
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