HUMAN CAPITAL MANAGEMENT M&A MARKET DYNAMICS
With the first 9 months of 2025 in the rear-view mirror, a theme of resilience has emerged, as U.S. staffing hours demonstrate stability despite an uncertain and dynamic environment. Slowing growth of the U.S. labor market, persistent inflation, and policy uncertainty continue to cloud the trajectory of the Human Capital Management space, while technological advancements bolstered by AI solutions provide reasons for excitement in an increasingly competitive staffing & outsourcing services landscape.
Following the theme of the previous two quarters, dealmaking remains strong due to increasing interest in tech-enabled outsourcing services as quarterly transaction volumes continue to record modest increases over 2024. Volatile demand for temporary staffing has left staffing services M&A transaction activity mostly level with 2024 volumes, though high performing players in the space are able to command a premium valuation as acquirers look to capture quality assets to facilitate continued growth.
What We’re Discussing With Clients
Dynamic Hiring Environment
Hiring trends continue to vary materially between segments. Professional and highly-specialized sectors such as IT, accounting, and legal have maintained stable demand as the outsourcing of these skills becomes more prevalent. Alternatively, blue collar staffing segments such as warehousing, industrial, and clerical continue to report month over month declines in order activity. Human Capital Management growth remains stagnant through Q3 2025 as macroeconomic conditions and policy changes continue to impact temporary staffing and permanent placement services. However, bill rates continue to post modest increases as the demand for contingent labor remains strong. Tech-enabled staffing and outsourcing services providers will be at an advantage in a dynamic environment where rapid changes in strategy are necessary to remain competitive.
Ai Integration is Redefining Workflows
Generative AI is rapidly reshaping the staffing industry, especially front and middle office systems centered around talent acquisition, communication automation, and placements. Many vendors are embedding AI into their platforms, though the sophistication of these solutions varies significantly as rapid evolution and complex data inputs have the potential to outdate features as quickly as they’re introduced. The most significant use case for generative AI in staffing is the redefinition of recruiter workflows in creating automated job postings, fielding email and phone responses, and vetting candidates before human intervention is required. While the advantages of AI solutions cannot be overstated, implementation challenges remain as data quality and integration complexity present a steep learning curve to staffing & outsourcing services providers.
Mixed Outlook for Temporary Staffing
U.S. Staffing hours have continued to fluctuate, with total hours declining by roughly 3% since Q3 2024. While the industry remains forecasted to grow modestly in 2026, the estimate remains clouded by factors such as the slowing growth of the U.S. labor market, continued inflation, uncertainty around policy changes, and the influence of AI. Trends in staffing hours continue to vary between the professional and commercial sectors, with demand for professional staffing remaining resilient despite a stagnant labor market. All things considered, staffing hours are demonstrating stability through the first 9 months of 2025, which is notably stronger than the downward trends observed in 2023 & 2024. This provides reasons for optimism as we set our sights on 2026.
