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Q4 2016 Business Products and Services Industry Spotlight

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As an industry that moves in close proximity with the global economy, the outlook for the business products and services (B2B) industry remains steady and continues to see the same underlying factors drive it. Moving forward, stagnancy is in the forecast; and while the outlook isn’t completely negative for the B2B sector, management teams are certainly moving forward with caution.

In the midst of wages continuing to rise in the B2B industry, the big question in play is whether or not revenue can rise to offset the increase in wages.  With inflation set to remain low, companies will face problems increasing top lines and as a result, will see squeezes on their margins and operating results. With lukewarm prospects for top-line growth, margins can be maintained by managing cost structures and vendor prices along with back-end technology which can be a significant driver of cost savings. Yet, cybersecurity has recently become a heightened concern for management teams of many B2B information and data providers.

Key deal highlights from the third quarter:

  • Despite the fall off in mergers and acquisitions (M&A) activity, valuations have continued to remain extremely strong with a median valuation-to-EBITDA multiple for year to date through September sitting at 10.5x which is more than a whole turn higher than 2015.
  • For M&A activity, both transaction value and volume with investment dollars of $23 billion and completed deals of 506 amounted to a quarter-over-quarter decline of 68 percent and 29 percent respectively.
  • Within private equity (PE), B2B completed transactions declined by 15.4 percent in value and 37.1 percent in activity quarter over quarter.
  • Third quarter of 2016 recorded the fewest completed PE-backed sales since the comparable period in 2013.

 

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