Solving The Value Equation

Backoffice Administration FAO M&A 2019 Deals YTD

Backoffice FAO Administration 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. Accounting firm deals typically pay 0% to 20% upfront based on either 1 to 1.3x gross revenues or 1.5 to 3X SDEs, or 2 to 4X EBITDA.
• Most scaled firms earn a higher EBITDA based on their Earnings multiples twhich ypically range from 6x to 8x EBITDA, or 11x to 14x net income after tax. These are rather moderate multiples, reflecting the limited scalability and growth potential of people-based services where capacity is always a limiting factor. Professional service businesses are highly profitable; typical profit margins range from 15% to 30% on revenues (EBITDA)
• 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.
• Multiple deals to acquire books by platform across Intacct, Workday, Netsuite, SAGE, Microsoft, FinancialForce, Acumatica
• The Rise of the “As-A-Service” Economy (“AaS”) as illustrated by more than a $2 billion in funding over the past few years creates the opportunity for star performers to realize 2x EV rev/multiple at scale. 

Backoffice Administration Industry M&A Deal Drivers Commentary

• Multiple acquisitions per quarter of accounting firms acquiring both CPA and non-CPA firms.
• Deals driven by digital transformation, industry consolidation, & shift to the cloud.
• Pricing commoditization of bookkeeping and accounting services augmented by demand for analytics, financial modeling and strategic financial services.
• Growth driven by demand for cloud solutions, F&A optimization, spend efficiencies, and analytics.
• Majority of service deals priced 80% to 100% of annual revenues, with outsourcing & BPaaS deals commanding a premium multiple.

 

Backoffice Administration F&A Deals YTD

The following list of M&A deals is for illustrative purposes only. For a complete list for your industry contact ERGO.

2019 – Sage Payroll Solutions sold to iSovled for 2.05x EV/revenue multiple.

2019 – Certify acquires Chrome River Tech expense reporting and invoice management in deal valued at more than $1b. Combined has 11k customers across SAP, Oracle, NetSuite, Sage Intacct, Microsoft, JD Edwards and QuickBooks.

2019 – Wave acquired by H&R Block for $405m.

2019 – JTC Group acquires Exequtive Partners, FAO w/ CXO-CFO partners fractional, plus corporate secretarial support (28 EE) for $25m.

2019 – ATAX Franchise Inc joins LoyaltyBrands to expand nationwide and serve the US Latino market. Undisclosed. Together we will create the largest Latino Franchise company with thousands of locations throughout the country" 

2019 – Indinero acquires mAccounting, outsourced accounting and CFO services to SMBs. “We’ve always felt like the accounting firm that wanted to be a tech company,” “Founders need both real-time data and a financial partner to help them make smart decisions, secure investment, and scale," 

 2019 – CBIZ (NYSE: CBIZ) acquires The Wenner Group (outsourced F&A CPA with 14 EE and $2.4m revenues).

2019 – CFGI [The Carlyle Group subsidiary, NASD: CG] acquires Pine Hill Group. Undisclosed. CFGI aims to be the go‐to partner for every CFO and finance executive nationwide. And expands offering to complex regulatory markets.

2019 – Addison Group [Odyssey Investment Partners] acquires DLC, finance and accounting consulting and staffing firm.

2019 – EY acquires Pangea3, global leader in legal outsourcing.2019 – Baker Tilly acquires H.J. Umbaugh & Associates, CPAs, LLP

2019 - Wifli LLP acquires Howe, Riley & Howe, PLLC.

2019 – ARGI Financial Group acquires Stiles, Carter & Associates,

2019 – Marcum LLP acquires Guyder Hurley MA CPA firm.

2019 – JS Held acquires Magnan Graizzaro Associates, accounting firm.

2019 – Prager Metis CPAs acquires Beck, Villata, & Co..

2019 – Brixey & Meyer acquires Harlow & Ohmer.

2019 – VACO acquires Aventine Hill Partners, Texas F&A advisory, consulting, staffing, recruiting leader.

2019 – BDO acquires AC Lordi, accounting, risk, and search services provider with 100 professionals.

2019 – Blucora, acquires 1^st Global.

2019 – BV Investment Partners acquires Intelliteach, backoffice and managed finance & IT services for the legal and professional industry.

2019 – TPG, investment group, acquires Entertainment Partners, leader in payroll, tax, finance for the entertainment industry.

2019 – Out‐of‐the‐Box Technologies acquires EBS Associates. Undisclosed.   Merger of two QuickBooks VARs creates national leader with offices across the United States.    

Backoffice Accounting & Administration Industry M&A Corporate Development Deals Commentary Update

While valuation multiples vary by size, there exists a significant multiples difference among firms that provide accounting administration services based on their industry model category and financial comparables. Since 2012, based on a number of private and public sources, private company backoffice company deals values ranged from 0.5X to 4.3X EV/Revenue multiple. 

Deal value multiples by industry model category

• 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
• Professional services have historically traded at <1X revenue multiple
• Scaled outsourcing solutions have traded at >2X with a premium paid for industry centric, scaled assets >$25M with a portfolio of recurring managed solutions

Industry Landscape Overview

YTD 2013 M&A Transactions Recap

YTD 2013 M&A Forecast & Landscape:

We anticipate M&A activity to be quite robust over the next 9 to 18 months as SaaS technology expands and as service providers consolidate to become solution providers.

 

Mergers and acquisitions in the B2B software, information technology and BPO services continued at a fast clip in Q1 2013 (# of 2012 deals rose over 2011 levels).

• Strategic acquirers have been focusing on complementary acquisitions, with the majority of transactions less than $100M and seeking complimentary assets/capabilities and also distressed or stagnant businesses without access to capital (stuck in the growth capital liquidity trap).

For companies with less than $10 million in EBITDA there is a shortage of financial acquirers as private equity firms have focused predominantly on companies with $10 million in EBITDA or more.

The Bottom line: The race is on for both IP and market share dominance as BPOs and solution providers as well as enterprise software vendors look to fill gaps in their product and service strategies.

 

Related articles:

2013 Marketing services M&A Valuations, Multiple Outlook

How Cloud Computing Is Redefining the M&A Landscape

PWC 2013 US technology M&A insights

Useful Capital Strategies for Growth in 2013: Preserving Equity for Entrepreneurs

While growth capital is readily available for large scale profitable enterprises and venture capital is focused on a narrow segment of industry sectors (life and bio sciences, high tech and software, and energy); useful capital sources for asset light service businesses are bridging the gap for companies looking to jump the chasm from a small and medium sized business with limited financing options to a market leader. And jumping the chasm creates the opportunity for wealth creation for founder’s not readily available via other financing instruments.

Useful Capital Funding
An alternative to venture capital funding is useful capital financing that preserves the founder’s equity and has flexible payment terms controlled by the entrepreneur.

Historically, startups have raised seed funding from friends and family money and/or angel capital to create an initial product or service in the market to validate the initial idea.

Annually there are approximately half a million businesses created in the USA, and only 600 to 800 companies receive venture capital funding as it requires a significantly large market opportunity. For startups driven by innovative founders venture capital can be the perfect marriage of funding coupled with ongoing management support necessary to transform the company into a market leader. But for most entrepreneurs venture capital (VC) is simply not available as the company focus is too narrow and/or the industry is not sexy.

Growth Capital Funding by Industry via NVCA 2013 Yearbook PDF Report:

Growth Capital Funding by Industry Sector via NVCA 2013 Yearbook PDF Report:

Once a company is beyond its rapid growth stage multiple types of private equity capital are available to profitable enterprises with significant EBITDA in the form of mezzanine and growth capital instruments in order to recapitalize the business. A recap is most often used for the purposes of succession planning and/or to pursue expansion.

For asset light businesses venture capital is simply not available. Entrepreneur friendly capital is more inclined to invest in low-tech industries, multi-location service companies, and franchises than venture capital.

Did you know that the top quartile performing VC’s over the last decade returned their investors on average less than a 10% return ?

VC’s swing for homeruns, but only average 10 to 24% percent investment returns. Investment risk and coupled with the legal responsibility to maximize returns to their shareholders and not the invested company shareholders capitates funding flexibility for entrepreneurs. At the end of the day VC’s are fiducially responsible to their investors and not to their companies.

Creating Wealth Through Growth

Did you know that from 1995 – 2009, privately funded capital backed companies grew sales by 133%, while the United States grew sales by 28% and grew jobs by 82%, while all other companies in the U.S. economy grew jobs by 12%?

Looking to grow and create liquidity?

There are better options for asset light service businesses. Most business owners have heard all about venture capital funds as a source of funding for startups and early-stage companies. But what about profitable companies who want to preserve their equity— where can they go for their millions?

 

Jumping the Chasm from a Subscale Company to a Scaled Enterprise

Jumping the chasm from a “sub scale business” to what financial investors and strategic buyers consider a “scaled enterprise” is really difficult.

 

Did you know that less than 1% of new businesses achieve $10 million in annual revenues in their first ten years?

Of these, six out of every ten fail to “jump the chasm from subscale or scale”. For any businesses, growing beyond subscale requires a smart plan for growth.

 

Related downloads from Ephor Group:

Useful Capital Funding Growth Options

Attracting Capital Investment and Institutional Funding

The Founder’s Dilemma and Overcoming Barriers to Growth

 

Technorati Tags: Useful Capital,Entreprenuer Friendly Capital,Growth Capital,Capital Funding

2012 M&A Transactions Recap

We anticipate M&A activity to be quite robust during 2013.  Mergers and acquisitions in the software, information technology and BPO ... read more @ 2013 M&A Forecast & Landscape - The Value Equation -

2012 M&A Transactions Recap:

The Value Equation : CRM BPO Services 2012 YTD MA Transactions. Dec 2012 ... CRM BPO Services 2012 YTD M&A Transactions.

The Value Equation : 2012 YTD HR software MA transactions

Nov 2012 ... HR Software M&A Transactions 2012 YTD Recap The marketplace for workforce management software and related HCM (human capital services...

 

M&A eResources:

Baird M&A Market Analysis

Mergers & Acquisitions Trends (Tables) – CapTarget

EY Global Technology M&A Update

Grant Thornton M&A Update

Human Capital Services Report - Winter 2013

HydePark Capital

KPMG’s Sourcing Advisor Pulse

KPMG Merger Deal Stats by Region

M&A Industry Updates from Generation Equity Advisors

Merrill Corp. - M&A Insider (May 2012)

PE Breakdown - Q2 2012 (Merrill Corp.)
Peachtree Capital Advisors Blog

PEG M&A Updates

Software Equity Group SaaS M&A Transactions

Strategic M&A Analysis | M&A Sector Insights by Industry

StreetInsider M&A News

Thompson Reuters Global M&A Report - Q2 2012

Top Tech M&A Deals in 2012

VC Backed Investments and Exits - National Venture Capital Association

Venture Deal Alert Blog

Venture One Million Blog

Useful Growth Capital M&A Corporate Development

Are you seeking sales?

If you are in Houston on May 17th, join us for the upcoming TeXchange event with special focus on sales and marketing revenue growth tactics that are working in this slow growth economy.
(to attend email us and we’ll add you to the guest list)

Panelists will include:

• Mr. Colby Thames, a greater Houston native, whom has led and advised multiple software and service companies as is now the founder and managing partner Stryve Advisors. 
• Mr. Rich Barfield, clinical lab scientist by training, who works with healthcare and medical technology companies, national laboratories as well as hospitals across the nation.
• Mr. Austin Goings, Sales Director Upstream Group at GE Smart Signal with 20+ years of solution-based, enterprise software sales in both large established companies as well as smaller, start-up organizations.

Read more about TeXchange here.

 

At Ephor Group, we partner with our clients to accelerate growth and achieve best-in-class performance that results in better wealth creation for the founders and employees. 

There are many ways to grow, but which will ensure the business increases its profitability, sustainability, and value?

If you cannot attend TeXchange, then checkout our Video Series on Revenue Strategies for Growth in 2012.

1. More efficient cost of customer acquisition than the competition.  Alternative Distribution including Alliance Partners, Joint Ventures, Channel Strategies, inside sales, and ecommerce.
2. Boost lead generation via Internet Marketing, Inbound Marketing, and Online Advertising and boost demand generation via market research and brand building campaigns.
3. Migration Expansion via distribution channel, geographic expansion, product expansion, or vertical segment expansion.
4. Useful capital strategies for growth capital expansion.
5. M&A Corporate Development.

For more information on TeXchange or revenue growth strategies contact Charles Bedard

Revenue Multiple Valuations: Company Valuation Resources for Solving the Value Equation.

Solving the Value Equation for B2B Technology, SaaS, Software, and Outsourcing Providers.

The primary valuation drivers for emerging fast growth B2B technology, SaaS, and outsourcing providers primarily include: a SWOT of the recurring revenues, operational & service delivery model KPIs (key performance indicators), and the assets and liabilities of the company. 

B2B BPO Outsourcing Market Landscape and Valuations:

The outsourcing industry sectors are highly fragmented across regions and industries, rich in opportunities for consolidation and therefore attracting both private equity investment and increasingly active corporate and strategic buyers. Transaction multiples are currently pegged around 4-8X times EBITDA (pretax profit) and 2-5X times revenue multiple for deals greater than $20 million for technology based firms and 1X to 4X revenues for smaller, growth oriented labor intensive firms (based on Ephor Group deal sources for private company transactions and public sources for public company transactions).

BPO Outsourcing Valuation Comparables:

 

SaaS Valuations by Industry Sector:

By 2014, $1 of every $5 that will be spent on software will be spent on cloud or SaaS solutions. 

 

Maximizing valuation and wealth creation “Yellow Brick Roadmap”:

2011 and 2012 saw a spike in revenue multiple valuations for SaaS and cloud software companies. In the future B2B technology, SaaS, and outsourcing companies that are growing aggressively with low customer acquisition costs and high retention rates with realize the highest revenue valuations.

 

Looking to increase your valuation? i.e. increase the value of your technology, SaaS, or outsourcing company?

For more information contact charles bedard at ephor [at] ephorgroup.com

Business Owners Need to Get Paid > How-To Create an Institutional Investment

Business owners always say to me, “Why would I need capital and advice once I get to $5M?”  

This is a short-sighted view and one of the main reasons why less than 1% of all companies reach ten years and $10M in revenues (SBA Department of Labor finding). AND also why very few business owners achieve financial freedom. 

An executive team is effective, healthy, and wise when it creates “Optionality” for itself. 

While the days of angel investors and “hockey-stick funding” went away with the stock market losses in 2008; enterprises with a unique business model, effective management, and positive cash flows have access to institutional investors (private equity, SPIC,  family office investors, strategic investors, to name a few options) whom can provide Optionality.  

A small business has the following limited options:

1. Grow organically;
2. Merge to become bigger; or
3. Sell.

Institutional Investment creates additional options such as:

1. Get paid for the business you created by selling a percentage to institutional investors while still retaining majority control;
2. Grow by acquiring additional locations, competitors/substitutes, technology add-ons, or distressed revenues;
3. Expand into new products/services or markets; or
4. Acquire top talent.  

Ten Criteria for Institutional Investment

1. Repeat Customers. The main reason why most small businesses fail is that they run out of cash. By building a business with a recurring revenue model a firm not only creates more stable financial footing, but also opens the door for institutional investment.  
2. Easy to Realize 5X+ Revenue Growth.  Growth capital investors are seeking companies that can grow at 40% per year or more and realize a 40% return on invested capital.
3. Significant Barriers To Entry. What is in place to prevent other companies from copying what you’re doing?
4. Strong Financial Indicators. EBITDA of at least 10%, above industry average Gross Profit, cost-effective customer acquisition costs. Understanding of these key metrics is requirement before scaling and growing. 
5. Consistent Operational Performance.  This means steady margins, EBITDA, and new customers quarter after quarter.
6. #1 or #2 Market Targeting.  Unless you are positioned #1 or #2 in your market your branding and strategy needs work.  At the same time investors like to see some competition because it validates that a market exists.
7. 30 Named, Referenceable Clients.
8. Investable Market Sector. There are a plethora of investable industry sectors.  A few “hot” investment sectors for the second half of 2009 include:
   • Healthcare business services
   • Healthcare technology-enabled business service-oriented solutions
   • Business Process Outsourcing (BPO) including Human Resources Outsourcing (HRO) and Finance and Accounting Outsourcing (FAO)
   • IT mobility solutions
   • Marketing and online technology-enabled business solutions
   • Workforce software and technology
   • Small and mid-market focused SaaS solutions
   • In summary: anything that improves productivity while simultaneously reducing costs.
9. Scalable operating processes.  Does each new dollar invested at the field-level result in a higher percentage return of profit?  If not, additional operational refinement is needed. 
10. Effective management processes.  Monthly operating, sales, and financial performance is known, reported, and effectively communicated to all employees.

The institutional investment criteria listed above is a roadmap for wealth creation.  Are you and your firm ready for analysis by outsiders on a regular basis? 

It all depends on your “Happy Ending.”  Is your “Happy Ending” to create wealth and ensure a lifetime of financial stability for your family or to have 100% control of your business?

 

Technorati Tags: growth capital,instiutional investment,management best practices,operating scale,happy ending

2009 Top Ten Trends for Performance Improvement: #9: M&A as a Growth Driver

Mid-market enterprises have the:

1. Opportunity to consolidate fragmented markets (quality investments more important than ever!)
   
2. Capital available to purchase distressed and “cheap” assets (in recessionary times is #1 PE priority)
   
3. As a ‘Perform Businesses’ it is “time-to-shine”; the deals being transacted have positive cash flows and increasing revenue streams resulting in increasing valuations.

 

Technorati Tags: M&Alternative distribution,corporate acquisitions,corporate development,growth capital,private equity growth capital