This document summarizes the backoffice industry and mergers and acquisitions trends. It notes that larger accounting firms are acquiring non-CPA firms to gain digital capabilities. Outsourcing firms are acquiring books of business for cross-selling potential in areas like payroll, HR, and cloud solutions. Industry consolidation is also occurring as firms move to implementation, consulting, or small business models. It provides examples of recent M&A deals and typical valuation multiples between 0.5-2.0x revenue. Larger deals involving outsourcing solutions can reach 2x revenue multiples. The briefing identifies opportunities around industry transformation to cloud/SaaS solutions and bundling of services.
Backoffice Industry M&A Deals Commentary and Valuation Multiples
1.
ERGO Comps, LLC
O: 281.756.7178
www.ERGOcomps.com
Backoffice Industry M&A Corporate Development Deals Commentary.
Backoffice accounting and administration deals driven by the following industry drivers:
Continual movement of larger accounting firms acquiring non‐CPA firms
o Deals driven by digital transformation, industry consolidation, & shift to the cloud
Acquisition by outsourcing firms to acquire books with cross‐selling potential to
both existing and future clients.
o payroll/HR/workforce services (WFM)
o cloud solutions, F&A optimization, spend efficiencies, and analytics
Industry consolidation of reseller trapped into either implementation, consulting or
small business models.
Accounting, Staffing, & Consulting firms needing an external exit option, beyond
internal MBO succession, are going to market during this robust economy, versus
procrastinating to a point where they are faced with accepting winding down.
Backoffice Deal Valuation Multiples.
M&A Subscale Deal Multiples Revenue Valuation
0 0.5 1.0 1.5 2.0 2.5
Staffing Accounting & Consulting Recurring Solutions Outsourcing BPaaS
Industry Valuation Notables
Most accounting deals are priced 80 to 100% of annual revenues (source: AccountingToday.com)
with a premium paid for outsourcing & managed solution providers with long‐term contracts
at 2x revenue multiple for managed solutions.
Professional consulting services have hitorically traded at <1X revenue multiple while scaled
outsourcing solutions have traded at >2X, with additional premium paid for industry centric,
scaled asset (>$25M) with recurring managed solutions. More than 251 professional services
M&A deals between 2017 to 2019 with the majority of subscaled average deal size between
$7m to $14m at 0.5X revenue multiple with 6.8 EBITDA multiple with 65% of deal paid
upfront with remainder over 3 years earnourt.
2018 – Multiple subscale deals <$20m to acquire books by platform across Intacct, Workday,
Netsuite, SAGE, Microsoft, FinancialForce, Acumatica.
2018 – The Rise of the “As‐A‐Service” Economy (“AaS”) as illustrated by more than a $1B in
funding over the past few years creates the opportunity for star performers to realize 2X EV
rev/multiple.
3.
ERGO Comps, LLC
O: 281.756.7178
www.ERGOcomps.com
Backoffice Industry Briefing
Industry Trend Opportunities
→ Industry change from relying on a local bookkeeping service to transformation to a solution model that includes a
cloud/SaaS platform plus services.
→ While the global enterprise market focuses on deals greater than $1M ACV, there are small to midmarket opportunities
demanding a modern platform.
→ Leaders are bundling services with cloud “As‐A‐Service” solutions.
→ Move to the cloud creates portfolio opportunities to bundle and also deliver tools, analytics, and backoffice technical
solutions from Administration to Compliance to WFM/HR.
→ Consolidation among resellers.
→ Acquisition of emerging leaders by Accounting, Consulting, Staffing, and Outsourcing.
Industry Snapshot
FOCUS PROVIDER COUNT DESCRIPTION
FAO Startup to Small Business Top 550
Demand for modern expertise:
Projects plus small monthly retainer pricing
FAO Midmarket Top 200
Driven by demand for digital transformation and move to the cloud:
FaaS pricing model similar to BPaaS + FAO pricing
FAO Industry Leaders Top 40 By Industry
Industry solution includes deeper scope of services and industry software:
Premium pricing for industry preconfigured solutions
F&A Staffing Service Leaders Top 100
Demand for certified professionals as well as analytics & procurement: various
pricing models
F&A Partners, Vendors and
Service Providers
Hundreds by type
Types include: SI Consulting, VAR, & Sourcing procurement advisors:
Pricing based on implementation consulting plus managed solution fees
Why Conduct an Industry Briefing Checklist
Review Finance‐as‐a‐Service trends, and M&A deal opportunities
Review deal opportunities
o Geographic market expansion
o Industry consolidation
o Recurring managed service solutions
o Technical services, implementation and consulting capabilities
Identify 10X opportunities and ideas to outsmart your competition.
Industry
Briefing
→ For a complete list of opportunities, contact
ERGO to schedule your industry briefing.