Amazing seller’s market for staffing industry firms won’t last forever

By Neal England
Practice Leader

Domestic staffing buyers, private equity firms and cross-border strategic acquirers were out in force at this year’s Staffing Industry Analysts’ Executive Forum North America, as all seek to put capital to work amid a tightening time window.

The event drew strong attendance and general optimism about the overall state of the industry, with a caveat about slowing economic growth.

With the economy possibly at its peak — and staffing company valuations the highest that industry insiders have seen in 20 years —owners contemplating a sale should act soon or risk missing out on this robust M&A market.

Alan Beaulieu, president of ITR Economics and the keynote speaker at this year’s event, informed staffing conference participants that he forecasts a mild recession in 2020 or 2021.

The latest survey of economists from the National Association of Business Economics (NABE) shows 77 percent of the 300 economists surveyed expect a recession by the end of 2021, with 10 percent expecting it this year, 42 percent expecting it next year and 25 percent expecting it in 2021.

We expect valuations to moderate and transaction terms to become less favorable if buyers become focused on the signs of increasing recession risk. This means that staffing companies planning to sell should strive to complete a transaction over the next 12 to 18 months, or they could lose out on the high valuations companies are enjoying now. It could be several years, perhaps as many as five or six, before valuations return to today’s peak levels.

Besides GDP growth and labor market conditions, staffing companies will want to keep an eye on a variety of economic indicators, including inflation, interest rates, globalization, geopolitics and tariffs, as all could impact the industry’s M&A climate. Even more important is keeping a keen eye on key performance indicators, such as shifts in client contract usage and days sales outstanding by client.

If a recession does occur during the next two to three years, and today’s high multiples don’t return quickly, staffing operators will have to notch significant growth after weathering a downturn in order to achieve today’s valuations. It’s definitely something to consider when evaluating the timing of a sale.

Besides plenty of capital targeting staffing acquisitions, here are a few other takeaways from SIA’s conference:

  1. Solid growth continues across all sectors with IT and healthcare staffing leading the way.
  2. Industrial staffing is undergoing a renaissance due to strength in the U.S. manufacturing sector.
  3. Increasing digital engagement remains a focus.
  4. Adoption of artificial intelligence, process automation, robotics, chat bot technology and blockchain will occupy many industry players seeking efficiencies.
  5. The tight labor market is driving retention efforts by clients, including flexible work schedules, remote working, engagement and wage increases.

Capital Alliance Corporation is a Dallas-based investment banking firm with a four-decade history, and deep operational and M&A experience across many sectors, including human resources. Capital Alliance is affiliated with Oaklins International, the world’s most experienced mid-market M&A advisor, with 800 professionals globally and dedicated industry teams in 40 countries worldwide. We have closed over 1,500 transactions in the past five years.

Industries: Staffing, Human Resources