MorrisAnderson

State of the Industry

• There are three categories in this area: white collar, blue collar and gray collar (which refers to the IT workforce, including consultants and service technicians such as Best Buy’s Geek Squad).
• Many business services companies depend on capacity overflow from other businesses – such as the outsourcing of marketing, IT, human resources, etc. Therefore, layoffs, downsizing and cost cutting at other companies trickles down to this segment.
• Most business services firms have receivables as their only hard assets, so most loans are based on cash flow.
• Overall, the business service industry is down 20 to 30 percent.
• Niches such as oil field services and staffing services are down significantly.
• Environmental service organizations may be doing slightly better than other niches, thanks to increased environmental regulation.
• In the area of technology, many large hardware manufacturers, such as HP and IBM, are buying technology services companies; consolidation is a big trend.
• Business services firms easily adjust to lower volume because labor is their primary cost and is flexible relative to other asset classes.
• Companies with long-term leases – primarily white-collar firms – have more difficulty downsizing than those with less fixed overhead.   
• Staffing companies are very sensitive to underemployment in the economy and at the same time are key drivers of the trend.

6- to 12-month outlook

• Staffing will come back first as companies begin to grow again and need more employees, but are reluctant to add to fixed labor costs. IT outsourcing will increase as the economy improves.
• Another silver lining: Companies are playing catch-up – hiring business services firms again to help with projects that were put on hold 18 months ago.