Ephor’s Newsletter Q3 2021
August 2021
As we enter the second half of 2021, we trust that the first half of 2021 has gone as you expected, and the rest of 2021 looks favorable despite all the disruption and uncertainty of recent.
As such, we would like to take this opportunity to provide some high-level perspectives and guidance as a result of our 20+ years of experience advising and investing in Business Services business models, specifically relating to the COVID disruption, economic uncertainty and its effect on firms such as yours. For example:
PPP Round 2 Government Loan/Grant Stimulus has come to an end: most Labor-Intensive Service Businesses firms are advising us that this “government subsidy” funding most likely will not fully provide for all the liquidity and operating capital needs of the company especially for those that have experienced material operating losses in 2020 and early 2021.
The Employee Retention Credits where eligible can provide material tax credit relief, going back to 2020 taxes and into 2021 for those businesses that qualify.
Acquisition Opportunities: We have seen a large increase in the number of sub-scale (books of business) assets that are “surrendering” and thus are seeking strategic partners to consolidate their assets and capabilities with. Even within the Ephor Inc. book” of business/clients”; we have successfully completed 2 transactions in the past 90 days. As we move into late 2021 and beyond what is clear is that size matters!
Flexible and Fluid Access to Capital: As a result of the aforementioned: we are experiencing a “flexible and fluid” willingness from the institutional lending/debt financial community, and some cases private capital providers to take on marginal financing structures at very favorable terms. This has been especially prevalent within the non- bank lending community. Again, just within the limited Ephor Inc. “eco ecosystem”, we have successfully completed 3 financing transactions which have provided material operating and acquisition capital availability for our clients.
Upcoming Legislative Changes: The Biden Administration has proposed various legislation that potentially will have material impact on labor-intensive service businesses.
Finally, due to over our 20+ years of investing, advising, governing, and stewarding labor-intensive businesses, we enjoy the privilege of reviewing and analyzing quarterly and annual financial and operating statements for many of your peers. The most recent consolidated data suggest the following:
In 2020 the average revenue decrease was ~32% of the subscale assets, combined with a negative operating EBITDA performance of ~ <10%> of revenue.
In 2021 the sector forecast information suggests that the average revenue performance should rebound to be equal to the 2019 revenue performance, with average EBITDA margins in the 10%-12% range.
Subscale assets are having trouble in improving operating performance as such capitalization issues are becoming more prevalent.
Hopefully, the limited information provided above has at minimum provided an external perspective that is relevant to your business in the near-term. We are most happy to provide additional information on any of the contents above.
In closing, we would invite you to visit the Ephor Group Inc. website and more specifically the CEO Entrepreneur Friendly "Knowledge Library" below.