BPO Sector 1st Half 2025 Operating Results & Analysis

August 2025

The BPO sector has experienced and performed quite admirably as a result of the “more favorable” small business environment we have enjoyed in the first half of operating year 2025.

This is a direct result of the Trump Administration’s focus on more capitalistic policies as the Administration migrates the economy from a government and regulatory-centric policies of the Biden Administration, and in most situations, your tactical, effective, and progressive leadership.
 

In Ephor’s Q3 2025 Newsletter (sent out in mid-July 2025) we provided an update & forecast on the Legislative Environment plus a detailed update on the “Macro-Economic Environment”, specially the many positive influences for small service businesses (BPO Sector Macro & Legislative Update)

 By way of background: Ephor for the past 12+ years has provided and currently provides a “peer benchmarking subscription program” that allows Ephor to “benchmark” a specific BPO company’s performance to its peers in the industry by BPO subsector (i.e. BPO, HRO, Healthcare,  etc.)

 This database includes the operating and balance sheet information on a quarterly basis for ~85 of our peers.

 This performance data is not only quite useful to the CEO Entrepreneur but it very important to the “Institutional Investment Community” as they go about setting enterprise values (EV) and to determine appropriate "risk-adjusted" transaction structures.

In general, the operating “returns” for the 1st Half 2025 of our peers, strongly suggest a consistent & very favorable YoY (Year 2025 over Year 2024) comparable performance: Specific highlights include:

• Revenue YoY growth is averaging 10%-12% increase on average with an impressive Top 25% quartile of our peers reporting a 15%+ revenue growth YoY.

  • The lower 25% quartile illustrates an average of an anemic <6% to flat YoY revenue growth. In general, the lower quartile illustrates an unfavorable ability to sell only on price which in the long-term is “bad” for the sector.

• Gross Profit YoY increases are averaging an impressive 250 to 300 basis point increase (BPS) with the Top 25% quartile reporting averages of more than 350 BPS over 1H 2024 performance.

  • The lower 25% quartile illustrates almost zero to a negative improvement with most reporting less than 100 BPS increase. As a result of non-efficient operational execution and sub-market pricing.

• EBITDA YoY performance illustrates an impressive average of 325 to 375 BPS increases, with the top 25% quartile coming in at 400+ BPS.

  • The lower 25% quartile illustrates a range from a negative 200 BPS to almost no improvement in EBITDA performance.

Debt Levels in the sector were slightly reduced to an average of <15% of trailing twelve months (TTM revenue). The Top 25% quartile of our peers generally illustrate debt structures that are limited to “operating or growth capital debt” which generally includes a revolving Line of Credit (LOC) structure.

• In the first half of 2025 the sector experienced 14 bankruptcies compared to 23 in the same period in 2024. Ephor is aware of at least another 9-10 of our peer organizations that are “functional illiquid”.  These “operating asset failures” continued to be a result of those organizations that are poorly led and managed, as such, the debt levels and the debt service burden simply cannot be covered by their poor and/or anemic EBITDA performance.

• Another significant attribute prevalent in the “underperformer category” is what anemic EBITDA that does exist, is generally “non-recurring” and unsustainable.

• Enterprise Values (EV); in the near past, 6 months, illustrate closed transactions (~15) are showing very favorable increases in EV’s for the best and most efficient business models. This trend is expected to continue, driven by the forecasted ratably decreases in interest rates, less regulatory & government burden, lower inflation, and the growth in our BPO markets internationally. Ephor suggests that Enterprise Values in 2026 will return to pre-covid levels and potentially will exceed those levels, as we enter year 2027.   

As the above operating performance clearly illustrates, the sector is experiencing a “separation” of the performance quartiles with the top quartile of our peers clearly separating itself from its less effective peers (“laggers’). In late 2025  and early 2026 it is clear to Ephor that many of the lower 25% quartile players will approach “questionable going concern” status. 
 
Over the past 3 quarters we at Ephor have completed significant analysis, at the request of the sector “financial sponsors,” as to why the “separation of success”, and why the “failures and near failures of our peers” has become so prevalent. Those high-level findings include:

1. Effective Leadership Teams with the “Best” Business Models illustrate the following:

   • They are EFFECTIVE CHANGE AGENTS: they aggressively make the necessary changes to respond to the dynamic market conditions and are not “stuck in the legacy BPO business models attributes & thinking patterns of the past 10-15 years.

   • Their Business Models Illustrate a “Portfolio of Revenue” Sources: Growth revenue and new client growth results from a mix of direct sales, channel distribution, strategic relationships and effective marketing, etc.

   • Their Revenue Streams are Nearly Absent of Customer Concentration Risk; the riskiest revenue models generally illustrate customer concentration issues where 1-2 customers represent more than 20% of the company total revenue.

   • They have institutionalized Product Management Concepts: productization of services has become a significant market discriminator and is a very favorable attribute to the institutional investment community. Additionally, effective Product Management facilitates effective marketing, target market focus, and enhanced service delivery efficiency.

   • They have a Competent and Strategic CFO Professional and Function: this functional area of service businesses is a must for improving & delivering consistent operating performance as well as the ability to “raise” capital and manage relationships with the sector financial sponsors. A common trend of “the laggers” in the sector is their CEO Entrepreneur views this function as a back office and/or as a simple controller function.

   • They have a Formal Corporate Governance Function. The most effective governance venues we have experienced historically is the “Board of One” concept (Board of One Concept) or an empowered Executive Chairman role.

     • Formal Board of Directors role is likewise effective governance however, committees of this nature tend to be expensive, “bureaucratic”, often become political, and can provide mixed or conflicting guidance and leadership.
       

   2. The Lower 25% Quartile “Performance Laggers” Performers Consistently Illustrate the Following Leadership Deficiencies:

   • Total Inability to CHANGE AND ACCEPT CHANGE: this is the most prevalent barrier to success and improvement. The "Laggers" are generally comprised of legacy BPO Founders and leaders that are not capable & committed to CHANGING.

   • These "Laggers" in general are “Control Freaks” as such, they seldom develop talent around them, which results in their leadership teams illustrating a “revolving door”. They are unable to retain “professional and effective talent" which results in mediocrity at best, as such, the internal talent becomes “servants” to the dictator. The outcomes as proven sequesters change, innovation and progress. The real test is how many of these "lagger leaders" have provided and developed leadership talent for our sector?

   • Their Business Models are Absent of the Solid Fundamentals; generally, these “lagger” business models simply do not illustrate the business model attributes as presented in the above section. The results are this business models end up with “unattractive & excessive” risk profiles and illustrate burdensome debt structures and result in minimal EV.

   • Their value proposition is commoditized, their Go-To-Market deficiencies are so prevalent that they generally win business on a price basis only.

   • Excessive Debt Structures: these poor performing business models commonly illustrate large/excessive debt structures, which the debt service burden combined with the lack recurring EBITDA creates a potential failure cycle.

Before we close, recently many of you have asked about how Ephor is doing and what our results are like? In general, the past six quarters have been very favorable for us and our clients across the globe.

As most of you know, we never wanted Ephor to be about us; we simply wanted Ephor to be about you and your success. With that said: below are just a few of our accomplishments over our 24+ years of service to you:

• 23 of our client companies’ or investments have been recognized by “high growth” publications such as Forbes and Inc. magazines.

• 20 of our client companies have received equity investments by “qualified institutional investors”. Those investments have returned $4.77 dollars for every $1 dollar invested.

• 9 Exits resulting totalling over $350MM of wealth distributed to “Individual and Founder shareholders” just like you.

  • Most recently on June 30th of this year, we closed an exit transaction that returned $51MM to the shareholders

• 75 Financing and ‘financial engineering’ transactions in our 24+ years of service.

  • In 1H 2025 we completed 2 transactions deploying ~$15MM of capital to our peers. With a majority of the capital being growth oriented.

• $12 dollars of value received for every $1 for Ephor; Shareholders & clients have received on an average of ~$12 dollars in shareholder value for every dollar of fees etc. paid to Ephor.

In closing we know we speak for our investment partners and the lending community that supports the BPO arena. Simply estated, we at Ephor could not be more excited and optimistic about the near-term future for our sector and its participants.

In the near term we have a unique opportunity before us, therefore let’s all agree to collaborate and take full advantage of this opportunity.

 Our hope is that this information has at a minimum “sparked” overt thinking that will enable change and progress.

 As always, we would enjoy hearing from you!

 Best to You and Yours in 2nd half 2025.

Sincerely

Garry E. Meier

Strategic Practice Lead

Ephor Group, Inc.