Business Services
What are the hot trends and dynamics in business services? Any resources to read up on and get smart on the sector?
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Best sector to be in private equity
Why? Also what are the trends? Looking to study up for interviewing....
Just broad and a lot of money to be made
Businesses all share characteristics that make it ripe for PE investment (re(o)curring revenue, typically quite sticky, non-discretionary (not all), asset light, strong FCF conversion, accretive M&A and highly fragmented).
Tailwinds include outsourcing, on/offshoring, technology enablement, etc. Lot of value creation driven by tech implementation to drive efficiency/increase customer value prop
Biggest challenges macro-wise are wage inflation and labor market tightness, combined with high valuations (fraction of tech back in 2021 but expectations still high). Difficult to really have a true moat based on product/tech since you’re providing a service and typically low barriers to entry, so scale is the name of the game.
PE firms have gotten comfortable with human capital element of the business and have executed well but retention is key to building a successful investment. These businesses tend to be much more operationally hands on than other sectors given the business building required but returns make it worth it.
I cover services among other verticals, happy to discuss further
What are the best pe companies in business services?
Most firms invest in business services at this point but some top large cap names that come to mind are Warburg, Apax, New Mountain, TA, Leonard Green. Ton of other good MM players
Thanks. This is excellent. Would love to dm you...any resources to read/case studies, etc
Sure, can PM you
A bit late here but have an upcoming interview in Business Services group in London (currently in FIG IBD in NYC). Would you be available to touchbase ?
Hi - thanks a ton for the helpful comment. Would be super grateful if you could share any case studies / reading material! Have a first round coming up and trying to read anything I can get my hands on.
Would love to get any resources / help as well, thanks!
Great points by the top comment here. Having spent a few years as a generalist, I think biz services is a great spot to be in
Some business services companies have gotten wrecked in the post-COVID environment with rising labor rates and turnover. These businesses obviously can’t run without people and in a competitive labor environment, I’m not sure if its as good of a PE target as you guys have said. Barriers to entry for some of these businesses are pretty low and most of the value creation levers revolve around inorganic growth (i.e. M&A). Like all sectors, it’s not perfect and I think people are finally seeing that recurring nature of business services revenue does not equal SaaS recurring revenue.
Fair point but I think all sectors in pe have drawbacks including SaaS. Think comments here just trying to say it is a good space to be in just like other attractive sectors
Would you be able to elaborate on the recurring revenue point vs SaaS? Not sure I fully appreciate
Think above poster is referencing the strength / enforceability of contracts in services businesses vs. SaaS — which I agree with. In general, services businesses with recurring revenue underpinned by contracts tend to be a little more flexible on terms (allowing for cancellation with X notice period, or deferral of services for Y period without breaking the contracts) than the contractually recurring revenue of SaaS companies.
This is a real consideration in a lot of cases but is certainly an underwritable risk.
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