Business Process Outsourcing Market Update – September 2023

Elevated Interest Rate Environment Drives Clients to Sector, Boosts M&A Activity

Capstone Partners released its September 2023 Business Process Outsourcing (BPO) & Contact Centers Market Update, reporting that the BPO & Contact Centers sector has showcased significant strength amid economic volatility. Driven by an elevated interest rate environment, businesses have increasingly outsourced front- and back-office functions to reduce overhead costs. Heighted demand for outsourced services has resulted in substantial merger and acquisition (M&A) and revenue opportunities for sector participants through year-to-date (YTD) 2023. Although cost-effectiveness has remained a key driver in the sector, organizations have progressively demanded higher quality outsourced services, spurring an increased level of specialization and integration with clients’ operations. Capstone Partners anticipates strong revenue gains and the emergence of specialized, integrated outsourced services to materialize in a frothy BPO & Contact Centers M&A market, propelling acquirer and investor appetite for providers serving high-growth end markets such as Healthcare.

M&A volume in the BPO & Contact Centers sector has continued to surge through YTD 2023 with 41 transactions announced or completed. This marks a healthy 20.6% increase year-over-year (YOY), especially compared to the broader M&A market which declined 24.8% YOY through Q2. Heightened transaction activity in the space has been supported by a well-capitalized buyer universe, as strategics’ margins have weathered economic volatility and private equity firms have remained armed with ample levels of dry powder. In addition, the expansion of sector participants’ service offerings has increasingly piqued acquirer interest, particularly in the Business Process Outsourcing market. Elevated dealmaking in the BPO segment has been driven by participants looking to expand service offerings in conjunction with clients’ needs. Notably, buyers in the space have increasingly targeted businesses with recruitment process outsourcing (RPO), human resource outsourcing (HRO), and business process automation (BPA) services to bridge clients’ talent gap and streamline back-office functions.

Also included in this report:

• Why acquirers in the sector have continued to prioritize middle market (less than $500 million enterprise value) M&A targets through YTD 2023.
• How average sector M&A purchase multiples have continued to outpace the broader Business Services industry and what is driving valuations in the space.
• A breakdown of sector revenue to-date and what end markets have driven elevated spending in the space.