Useful Capital Strategies for 2014
Ephor Group | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046
M&A Forecast & Landscape
We anticipate M&A activity to be quite robust over the next 12 to 18 months as strategic acquire distressed and low
Mergers and acquisitions in the software, information technology and BPO services slowed in 2013 compared
to the # of transactions in 2012, which rose over 2011 levels.
Overall, strategic acquirers have been focusing on complementary acquisitions, with the majority of transactions less
than $100M; while financial buyers such as PEGs have focused on consolidating market leaders or tuck-in acquisitions
for their current portfolio companies. .
Looking ahead to 2014 and 2015 M&A deals for strategics seeking complimentary assets/capabilities including a fervor
focus on distressed and stagnant businesses without access to capital (those firms stuck in the growth capital liquidity
trap) highlight the forecast.
There is a shortage of bank and venture capital for those companies with less than $10 million in
EBITDA, but a general surplus for companies with $10 million in EBITDA or more. However, family
offices and new forms of growth capital have emerged to bridge the gap.
The rising complexities and costs of doing business are causing market bifurcation and the
thinning of middle market businesses.
Capital options landscape:
Credit facilities will be almost exclusively asset based lending only.
Venture continues to ride the wave of “Consumerism.” The types of businesses that venture capitalists plan to
invest in the next 12 months are 33% targeting information technology and another 23% planning to invest in
health care or biotech. Approximately 44% of respondents plan to make new investments outside of the USA.
Mezzanine lenders remain eager to put capital to work with transaction structure and pricing relatively flexible.
Access to growth capital from PEGs (private equity groups) for branded sector market leaders only.
M&A corporate development deal valuations will be limited and capped.
The M&A outlook will remain strong, including deal count volume as cash-rich strategics augment growth and
Strategics Seeking Growth. Conditions are good for an increase in strategic acquisitions in 2014 and
2015 as U.S. corporations have built up immense balance sheet firepower, with more than $2 trillion
of aggregate cash currently earning a minimal return. Given the sluggish economic outlook, M&A can
be an effective tool for lifting the top line and generating margin improvement through synergies
following an extended period of cost controls.
Private Equity Financial Sponsors will be focused on selling assets due to pressure to put committed
capital to work and to generate exits. Financial sponsors evaluating platform acquisitions and add-on
deals continue to have in excess of $400 billion in un-invested capital that needs to be deployed as
well as access to debt at reasonable terms. At the same time, achieving fully valued realizations is a
high priority for private equity firms with aging portfolio companies.
2014 BPO Services eNewsletter
The old saying “You Grow or You Die” has never been more appropriate then now!
“This slow growth economy, the associated anemic labor markets and the
increasing government burdens, coupled with the increasing labor market and
workforce management complexities will continue to challenge us, cost us, and
deter us for quite some time.” Said Meier
The question is what can we do?
Ephor Group Founder Garry E. Meier shares some of his findings,
thoughts and conclusions to solving the many challenges facing us as
service side executives, including growth & growth capital strategies,
based on an eight month tour of operational, business process
outsourcing (BPO) and support center facilities in 13 countries in across
North, Central & Latin America.
Here’s the recap.
The LATAM region has become a receptacle of some 120 new BPO facilities
comprising approximately $350M in foreign investment in the past 3 years
alone. Even with these impressive growth statistics in that region, Ephor
Group has determined the total capacity utilization of BPOs in LATAM
is in the lower 25% quartile, while the English speaking capacity
utilization is even less. Of particular note, there exist a particular
opportunity for the Healthcare Business Services BPO’s to expand and prosper
Payroll Services experienced less than 5% growth in sector demand in
2013 driven by an anemic job market & slow GDP growth; while Workforce
Management (WFM) experienced greater than 25% Growth in sector
demand driven by increased reporting, compliance & employment lifecycle
requirements. This trend will continue for the near-term.
Key Metric: COGS and Gross Profit Margin as a Percentage of Labor Costs, needs to be a
real focus area. Don’t hire resumes first… create a more efficient and productive process…
then the resumes.
Key Performance Indicators: Ephor and its management teams measure the
company’s business metrics at times daily, often weekly, and consistently on a monthly and
quarterly bases. Our businesses are “Perform Businesses”. Meier said. “Find the top 8 to
12 key metrics that drive your business then focus the entire company on them.
Get down to a unit of one-based economic systems — such as gross profit per person per
The Future: Meier said he expects margin pressure to get increasing more difficult
especially in the North America labor markets due to “the administration’s” increase
in compliance, reporting and cost burdens. Therefore consolidation of especially
“sub-scale” assets to formulate scaled assets will be mandatory for survival and
wealth creation. Ephor suggest that specialized and focused BPO’s, SaaS, and cloud
computing services will be areas of opportunity in the near-term.
Meier concludes: “In my 38 year career I have never seen an economic
cycle or time where well managed and resourced service organizations
have not been successful”
Additionally Meier said “Ephor clients typically acquire one, and many times two,
companies per year. It’s not a roll-up strategy… it’s simply the execution of well
thought out growth strategy.”
Read more from Ephor Group online at www.ephorgroup.com/eresources.asp:
BPO LATAM Nearshore Findings
Beyond Payroll HRO Services
BPO FrontOffice Contact Center CRM Services
For more information contact:
Ephor Group Founder Garry E. Meier
Speaking Topics: The Technology Oriented Business Services Environment: Growth Strategies, Growth Capital Strategies, Corporate
Development Updates, M&A Activity and Sector Insights