By Neal England
A growing economy and business-friendly environment buoyed the staffing industry in 2018, and 2019 should still provide additional opportunities for growth in staffing as the economy enters its 10th year of an expansionary bull market cycle, although that growth will be more muted than in previous years.
The U.S. temporary staffing market was expected to rise by 4 percent in 2018 and 3 percent in 2019, according to Staffing Industry Analysts.
Some slowdown in velocity was evident in November staffing numbers. The net proportion of firms reporting an increasing trend in new orders dropped to 23 percent in November from 51 percent in October — the lowest level since November 2016 and lower than the 12-month average of 46 percent for this metric, according to SIA.
Still, there’s plenty of good news to go around. The industry association reported a deceleration of revenue growth in seven categories, but an increase in five categories of staffing noted below:
- Clinical/scientific to 21 percent from 8 percent
- Per diem nursing to 13 percent from 10 percent
- Allied healthcare: to 13 percent from 10 percent
- Legal: to 13 percent from 10 percent
- Marketing/creative: to 17 percent from 15 percent
The staffing industry faced some challenges last year, as median revenue growth among publicly traded firms sunk to its lowest growth in seven years, according to SIA. It also had plenty of bright spots, including growth in median net income, thanks in part to President Trump’s tax cuts, along with the lowest jobless rate in the past 50 years sparking demand.
U.S. staffing companies employed an average of 3.2 million temporary and contract workers per week in the third quarter of 2018, according to the American Staffing Association, and the number has remained above three million for 4 1/2 years.
Recruiting and retaining talent remains a primary challenge for companies in this tight labor market. Acquiring new talent while helping legacy employees upskill is causing companies to get creative in rolling out new practices to better serve employee futures. Some offerings we see include working remotely, professional/career development, flexible hours, and even flexible compensation plans.
Looking back on 2018, we note the growth in marketing/creative and IT staffing among the staffing industry’s highlights. We also saw movement in several trends, including a move by large staffing firms to add strategically complimentary services that round out a holistic approach to connecting people with employment, including training, development, employee engagement and educational services.
M&A activity to continue
The trend toward consolidation in the staffing industry also continued in 2018. Here’s a look at some of the year’s biggest M&A deals in the sector:
- Global investment firm KKR acquired Envision Healthcare Corp. for $9.9 billion.
- Japan-based HR giant Recruit Holdings acquired job-review site Glassdoor for $1.2 billion.
- Human capital management heavyweight Paychex acquired Oasis Outsourcing, the nation’s largest professional employer organization (PEO) for $1.2 billion.
- Canada-based OMERS Private Equity acquired Alexander Mann Solutions, a London-based firm with a global footprint, for $1.1 billion.
- In the IT staffing space, ASGN Inc. acquired ECS Federal for $775million.
With plenty of dry powder still available to be deployed, we expect industry consolidation to be a continuing trend in 2019. In fact, in late December, Quad-C Management, a middle market private equity firm based in Virginia, announced it had closed an investment in S.i. Systems, Canada’s largest IT staffing company.
The PE firm’s investment will speed up S.i.’s ability to grow organically and via acquisitions, S.i. Systems CEO Derek Bullen said last month in a press release about the acquisition.
We expect to see similar acquisition activity in 2019 in the United States, as PE firms hunt for ways to deploy capital, and as strategic acquirers continue to seek quality acquisition targets. Growth in IT, healthcare and marketing/creative subsectors all look promising as we enter a new year, although they won’t be without challenges if the economy moderates. While the window for strong seller-valuations with flexible terms remains open for now, recessionary signs are more visible. If and when we enter a downturn, reduced valuations with increased term rigidity will be the norm, causing sellers who seek premium values to wait out any recession.
Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40+ year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human resource management.