HUMAN CAPITAL MANAGEMENT M&A MARKET DYNAMICS
Following unprecedented post-pandemic performance in 2022, the Human Capital Management Industry has undergone a lengthy period of “right sizing” as demand for temporary labor has declined and key client industries, such as manufacturing and warehousing, have stagnated in terms of total employment. It is evident, however, that U.S. staffing is approaching a new equilibrium as labor market indicators, such as job openings and labor force participation, are nearing pre-pandemic levels.
M&A transaction volumes slowed in Q3 2024, while valuation multiples observed notable increases across key subsectors, indicating a continued appetite for high-performing assets. The advent of new staffing platform technologies is bringing a new excitement to the industry, with widespread growth on the horizon and strategic buyers showing an eagerness to transact as we look ahead to 2025.
As the advent of new technologies continues to impact the staffing industry, PMCF sought out the expertise of Rohan Jacob, CEO at ActivateStaff, to provide his guest perspective on a changing talent acquisition landscape and the influence of platform technologies on valuation in an evolving M&A market.
What We’re Discussing With Clients
Industry Recovery In Sight
The staffing market continues to experience performance downtrends after seeing extraordinary activity in 2022 following the pandemic, amplified by worse-than-expected slumps in key client industries such as manufacturing, transportation, and warehousing. As a result, staffing firms have undergone reductions to “right size” operations following this period of abnormally high growth. While the recent downturn has been discouraging, staffing executives are seeing improvements in customer demand and labor market indicators, instilling a new sense of confidence that business levels are stabilizing. Many staffing firms are rolling out new technologies and forecasting increased demand from approved client projects, proactively preparing for expansion.
Strong Demand Fuels Multiples Expansion
While staffing M&A activity has faltered in recent quarters, a more stable environment may be on the horizon. Key indicators in the job market are recovering to pre-pandemic levels, and investors are seeing a path to revenue growth for high-performing assets, driving higher multiples in attractive staffing subsectors. Rising contingent workforce programs, shifts to remote work, and technological advancements fuel demand for staffing and outsourcing services businesses, piquing the interest of buyers who stand to benefit from integrating sought-after and complex workforce solutions that are difficult to replicate.
Advent of AI & Tech-Driven Services
Innovative staffing companies that leverage modern technologies to enhance their services have demonstrated resiliency through struggles in the broader industry. Software & technology, as well as tech-driven outsourcing services businesses, have experienced consistent, and even increased activity in 2024. In an evolving staffing landscape, investors anticipate the adoption of AI and automated capabilities leading the way into the next generation of staffing solutions. Stable deal volumes and heightened valuations within high-tech subsegments reflect the value proposition offered by cutting-edge staffing platform technologies.
