Target clients in the industry are normally other businesses and corporations. The industry is in its growth phase and businesses have increasingly been depending on third-party specialists to reduce labor costs and leverage industry-specific expertise. The industry is going through a rapid rate of technological change and disruption. Adaptation to technology and changing consumer behavior is a key success factor.
The industry is driven by economic growth and innovation which warrant the use of third-party services. As a result key drivers for this industry include e-commerce growth, corporate profits, and technological innovation.
Recent Business Service Advisory Mandates
Selling a Business Services Company
Recurring revenue – Business services with an established and recurring customer base are considered valuable because of their book of clients. In addition, if the company’s customer base is well-diversified, it further reduces a company’s risk profile, warranting a higher valuation. Companies that can successfully implement a recurring revenue model either through a subscription and demonstrate high client retention are generally well positioned for a successful acquisition.
Experienced Professionals – The employees and their experience are the most valuable assets for any service business. Consequently, having a skilled team with the ability to deliver results and meet client expectations is a key success factor for such businesses. Having a defined training process is essential for a business service. In addition, if the company is dependent on key personnel to run specific operations, it is important to retain these employees through an ownership change.
Niche Service Offering – The business services industry is characterized by low barriers to entry and high competition. Consequently, companies in this industry must successfully carve out a highly specialized niche. Players can invest in R&D and technical training to better position themselves against competition to achieve so.
Margins – Companies in this industry are generally asset light and have low operating overhead. Consequently, companies the industry generate strong margins and cash flow. Consulting firms that have a strong track record or consistent top line growth and consistent high margins are considered attractive and can warrant a higher valuation. A caveat to this norm is the fact that often low margin companies will have room to implement cost-cutting measures and increase profitability. If this is the case, a buyer might acquire the company at a lower multiple and streamline operations to unlock value. While such a company might have a higher probability of sale, the exiting ownership will not receive a share of these profits.
With 40 years of combined experience serving businesses within Toronto, Ontario, and abroad, the Beacon transaction team has extensive knowledge and experience successfully working for several automotive companies from a variety of industries. Whether it be a valuation or sale, our team can provide expertise and resources found only at larger corporations, paired with the personalized touch of our M&A Advisory team. Contact us today to get in touch with one of our advisors.