By Neal England
Practice Leader – Human Capital Management
Staffing firms with strong growth, profit margins and solid management teams will continue to be highly sought after this year by strategic buyers, corporations and private equity firms, as buyers and sellers look for deal-making opportunities. Valuations remain very good as we continue to experience a peak staffing seller’s market with robust buyer activity from domestic and international buyers.
We expect last year’s strong merger-and-acquisition environment in the staffing industry to continue this year, especially if the economy continues to grow as expected. Candidate-driven conditions are driving demand across nearly every staffing sector while private equity seeks to deploy capital in asset-light services such as staffing.
There were 92 publicly announced M&A transactions in the North American staffing industry last year — up from 70 in 2014, according to Staffing Industry Analysts, an adviser on staffing and workforce solutions. The 32 deals announced in the third quarter amounted to the highest quarterly total since the second quarter of 2007, SIA said.
Healthcare and IT staffing lead the way
IT and healthcare led the way, accounting for nearly half of 2015’s deal volume.
As companies in a variety of sectors invest in technology, they will have a need for additional IT staffing. In the healthcare sector, the aging baby boomer population will increase demand for services, especially from companies specializing in the aging population.
Buyers are looking to expand their expertise in these sectors, while expanding their geographical footprint and industry heft in the highly fragmented staffing industry. Sellers in these sectors should experience good exit opportunities and strong valuations. Another active buy-side trend we are seeing is demand for skilled-trades staffing.
After IT and healthcare, light industrial staffing had the third most transactions last year, 12, followed by professional staffing firms with 11. Professional staffing firms do business across more than one industry segment.
Operating from a position of strength
Low unemployment and continued GDP growth should continue to buoy the overall staffing industry this year. Staffing Industry Analysts predicts the sector will grow 5 percent in 2016, down from 6 percent in 2015.
According to Staffing Industry Analysts, 44% of North American staffing companies plan to add staff over the next two years while 13% will invest in training, 10% will add branches and 9% will make an acquisition.
The staffing industry employs approximately 14 million workers per year, and these workers say the staffing industry has helped them get a permanent position, while others like the flexibility of temporary or contract work, according to the ASA. Who are staffing employees?
- Most (76%) work full time, comparable to the overall workforce (82%).
- Half (49%) of staffing employees say it’s a way to get a permanent job.
- Nine out of 10 said staffing work made them more employable.
- One-third (35%) were offered a permanent job by a client where they worked on an assignment.
- About one in five staffing employees cite scheduling flexibility as a key reason for choosing temporary and contract work.
- Nine of 10 employees were satisfied with their staffing company.
Capital Alliance Corporation is an 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 broad human capital management (HCM) and technology sectors.