The business support services industry is set for a strong year according to the latest Smart Money study from business and financial adviser Grant Thornton UK LLP. The total value of investment deals for the sector is already on target to beat that of 2011, with 16 deals worth £1.7 billion in the first quarter, compared to 86 deals worth £3.1 billion in total during 2011 and 83% of those polled expecting private equity investment in the sector to increase in the next 12 months.
In addition respondents were markedly optimistic about the exit market for the second half of 2012 with a large majority of respondents (63%) seeing improvement and 36% reporting that multiples of 7x EBITDA or more was the norm compared to just 5% 12 months ago.
“The results of this year’s Smart Money study for the support services industry are encouraging. As the UK looks at how to stimulate growth, the business support services sector is attracting investment and we’re seeing more transactions at a higher value,” explains David Ascott, partner, corporate finance, Grant Thornton. “While the sector is growing, the value drivers are still the same, with buy-and-build and recurring revenue streams key areas which investors are focusing on. The search for growth is also leading to investment in support service firms in areas facing legal and regulatory change.”
Business process outsourcing is cited as the most attractive support service subsector for investment at 83%; followed by operational support and consulting and advisory firms, both at 48% each and facilities management at 40%.
Public sector reforms are also creating opportunities for support services companies. According to the study, public sector bodies are partnering with support services firms to deliver non-core operations, so that they can concentrate on delivering high quality, frontline public services. Based on respondents’ feedback, 43% identified health and 30% identified central government as the most attractive areas for investment in the public sector.
"Whilst there are increased opportunities in the sector due to an opening up of the market and increased investor appetite our survey also indicates a note of caution regarding investments over the next year. Nearly half of those polled said that the wider financing environment will be the biggest obstacle to a growth in private equity investment, and that regulatory change and budgetary pressures also present obstacles to investment. While private equity firms recognise that the year ahead will present difficulties, nearly all of those in the study have already adapted their investment strategies to combat this, largely by focusing on improving existing assets, or looking for buy-and-build opportunities," concluded Ascott.