Business Process Outsourcing Market Update – January 2025
Industry-Specific Solutions Spur M&A in the Business Process Outsourcing Market
Capstone’s latest Business Process Outsourcing & Contact Centers Sector Update reports that the Business Process Outsourcing market has been a particularly bright spot in the broader Business Services industry amid volatile economic and capital markets conditions. Elevated interest rates and a tight Labor market have created a demand-rich environment for sector participants as businesses have increasingly outsourced non-core functions to reduce overhead costs and bolster decentralized workforces. As a result, sector businesses have drawn heightened revenue opportunities and acquisition interest. End market specialization has become increasingly prominent in the sector as organizations have demanded higher quality outsourced services and technologically-proficient workers to support more complex functions. Although sector growth has been supported by a myriad of end markets, the Information Technology (IT), Healthcare, and Financial Services verticals have been critical due to the vast amounts of complex administrative and data processing work needed to drive operational efficiency. Sector participants’ ability to provide end market-specific solutions is expected to dictate clear winners in the space and merger and acquisition (M&A) market throughout 2025.
M&A activity in the Business Process Outsourcing market continued to thrive with 2024 transaction volume slightly surpassing 2023 levels. Heightened deal activity in the space was supported by a well-capitalized buyer universe, as strategics’ margins weathered economic volatility and private equity (PE) firms remained armed with ample levels of dry powder. An influx of PE acquisitions created an even split of strategic and financial buyer activity—each comprising 50% of sector transactions in 2024. Many private companies prioritized acquisition targets that serve the same end market to enhance specialization and simplify integration. The rise of PE in the Business Process Outsourcing market was spearheaded by add-on transactions, which spiked 41.2% year-over-year (YOY). While platform acquisition opportunities have remained available for sector participants, sponsors increasingly targeted the sector’s fragmented middle market to bolster current portfolio holdings. Of note, middle market M&A targets accounted for 93.8% of total disclosed sector deals from 2022 through 2024 compared to 52.9% from 2019 through 2021.
The Business Process Outsourcing segment continued to yield the majority (70.7%) of sector transactions in 2024, with segment M&A volume rising 7.9% YOY to 41 deals—the highest on record. Elevated dealmaking in the segment was driven by participants looking to expand service offerings in conjunction with clients’ needs. Notably, buyers in the space increasingly targeted businesses offering outsourced billing, data analytics, and process automation services to streamline clients’ revenue collection and back-office functions.
Also included in this report:
- Which end markets are anticipated to drive revenue growth in the Business Process Outsourcing market.
- Business Services industry CEOs’ expectations for revenue growth in 2025, according to Capstone’s 2024 Middle Market Business Owners Survey.
- How M&A multiples in the Business Process Outsourcing market fared compared to the broader Business Services industry.
- A proprietary matrix including criteria typical of companies achieving a range of EBITDA multiples in the space.
- Why financing activity in the sector rebounded in 2024, including several notable funding rounds.
The expert investment banking professionals on Capstone Partners’ BPO Team work with leading middle market companies operating in the Business Process Outsourcing market to advise with their strategic decision-making in order to maximize financial outcomes at every stage of the business lifecycle. Our firm has developed a full suite of corporate finance solutions, including M&A advisory, debt advisory, financial advisory, and equity capital financing to help privately owned businesses and private equity firms address any need, ranging from growth and financial or operational advisement to an ultimate exit transaction. To learn more about the contents of this report, or about the benefits of starting a relationship with our BPO Investment Banking Team, contact us.
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