Hire Demand: Staffing M&A fueled by technology and the ‘great resignation’

Data InsightDealspeak 1 February

Hire Demand: Staffing M&A fueled by technology and the ‘great resignation’

Deal activity by staffing companies has remained strong since the COVID-19 pandemic began in 2020 – even with the deterioration in financing conditions in 2022.

According to Dealogic data, players in North America’s staffing and recruitment industry agreed 102 deals worth USD 2.7bn in 2022. For 2021, the sector signed 77 transactions totaling USD 8.8bn, a record in dollar terms due to two large deals: the USD 3.95bn acquisition of Alight Solutions by blank-check firm Foley Trasimene and the USD 2.2bn sale of Medical Solutions to CDPQ and Centerbridge Partners. The data include mergers and acquisitions as well as capital raises.

Secular shifts

The staffing sector has remained strong in recent years for three main reasons, explains Joe Kelly, CEO of The Re-Sourcing Group, a holding company for staffing firms in Stamford, Connecticut. First, secular changes in employment mean more jobs exist than working people as baby boomers retire and the ‘great resignation’ triggered by pandemic lockdowns continues. Second, the digital transformation of business has increased the need for technology skillsets. Third, significant economic growth has kept demand for jobs high. While the industry remains cyclical and tends to slow in recessions, the job market remains strong, unemployment is relatively low historically, and interest rates are still below the levels of previous downturns, says Kelly.

Traditionally staid staffing agencies are driving much of the dealmaking activity. They want to add talent acquisition technology to their offerings as the digital transformation of the enterprise takes grip. “The Uberization of the staffing industry is an ongoing trend,” says Barry Asin, president of Staffing Industry Analysts, a research firm.

A case in point is last October's acquisition of Bluecrew by private equity-backed Employbridge, the largest industrial staffing company in the US. Bluecrew has a “tech-first platform model,” something that is increasingly sought after, Asin explains.

M&A will continue to be driven by private equity activity, cross-border deals by large European players like Randstad [AMS:RAND] and Adecco [SWX:ADEN], and the demand for “tech-first models” by traditional staffing companies, Asin notes.

Taking a break

Talent acquisition technology maintained its rank as 2022’s most targeted staffing-related segment with 41 deals, the same as in 2021, according to data from Staffing Industry Analysts. IT was the most active staffing sector with 27 deals in 2022, up from 24 in 2021. Healthcare was another active sector in 2022, with 24 deals, according to the group.

“M&A is slowing from a fairly torrid pace,” says The Re-Sourcing Group’s Kelly. That is due to debt financing markets becoming choppy and the outlook for a recession in 2023. Still, as Kelly sees it, “tremendous” dealmaking opportunities exist “because there are thousands of firms and low barriers to entry.”

Matthew Ripaldi, CEO of Talent Group, a Houston-based IT staffing company that made an acquisition in January, says valuations have remained fairly consistent in the IT staffing segment because meeting demand has been a challenge. Businesses tend to trade between 4x and 8x adjusted EBITDA “and beyond,” he adds.

Besides Talent Group, other companies actively pursuing M&A in the staffing space, according to Mergermarket, include C Evans Consulting, Gale Healthcare Solutions, Ingenovis Health, Job.com, and Kavaliro.

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