United States: Staffing Industry M&A Landscape - Q4 2016

HIGHLIGHTS

M&A activity in the staffing sector has averaged approximately 30 transactions per quarter for the past two years, up approximately 20% from the 2012 - 2014 time period.

Strategic buyers accounted for 84% of the staffing acquisitions in 2016, with private equity (financial) buyers investing in a new platform acquisition accounting for the other 16% of the transactions.

– 9 new platform staffing investments were acquired by private equity groups in the fourth quarter of 2016 and 20 total in 2016.

IT staffing continues to be the most active staffing M&A sector, with 29 transactions reported in 2016.

Professional staffing companies (including IT, Healthcare, Finance and Accounting and Creative/Digital Staffing) continue to see the most widespread demand from buyers.

Many buyers, especially private equity investors and those buyers seeking to acquire larger staffing businesses, continue to comment on the shortage of higher quality staffing companies available for purchase. Companies with scale, strong growth and margin profiles, direct client relationships with a broad diversified set of customers, and with proven management teams continuing post-transaction remain highly sought after, both by strategic acquirers and private equity investors.

BY THE NUMBERS

  • 122 Staffing Industry M&A transactions were reported in 2016.
  • 28 Staffing Industry M&A transactions completed by 25 different buyers were reported in the fourth quarter of 2016.
  • 109 unique buyers completed staffing transactions in 2016.
  • 85% of these staffing transactions were completed by privately held staffing buyers in 2016.

M&A ACTIVITY – STAFFING INDUSTRY

The fourth quarter of 2016 saw 28 staffing industry M&A transactions completed by 25 different buyers. For all of 2016, 122 staffing industry M&A transactions were completed by 109 unique buyers. Staffing M&A activity remained strong in the last half of 2016 as sellers continued to take advantage of favorable market conditions, strong operating results and an ample number of well capitalized buyers (both strategic and private equity) interested in making acquisitions in the sector.

Acquisition activity will likely remain robust in 2017, as we continue to field a steady stream of inquiries from both staffing industry strategic buyers and private equity investors. A growing number of potential sellers have indicated that the timing may be right to explore transaction opportunities. With most staffing companies continuing to perform well and valuation multiples remaining attractive, now could be an excellent time to be in the market to sell a staffing business, especially for faster growing professional staffing businesses (IT, healthcare, creative, etc.) with annual EBITDA in the $2-8 million range.

Many buyers, especially private equity investors and those buyers seeking to acquire larger staffing businesses, continue to comment on the shortage of higher quality staffing companies available for purchase. Companies with scale, strong growth and margin profiles, direct client relationships with a broad diversified set of customers, and with proven management teams continuing post-transaction remain highly sought after, both by strategic acquirers and private equity. Companies with flat or declining growth profiles, customer concentration, or without management teams staying on with the business post transaction are finding more limited buyer interest and hence, less exciting valuation multiples.

Staffing industry acquisition activity remains primarily driven by privately held strategic buyers (many of whom are backed by private equity funds), as the larger and better known public staffing companies account for only a limited number of transactions each year. In 2016, 85% of the transactions were completed by privately owned buyers, with only 15% acquired by publicly traded entities.

Strategic buyers (including those staffing companies primarily owned by private equity investors) completed 84% of the staffing acquisitions in 2016. This follows the 87% of announced acquisitions completed by strategic acquirers in 2015. Private equity (financial) buyers seeking to recapitalize their businesses continue to be an attractive option for the largest and fastest growing staffing companies, with 9 new platform investments made in the fourth quarter of 2016 and 20 in all of 2016. Companies with scale, excellent growth rates and with management teams seeking to continue the growth of their businesses while taking some money of the table are proving to be very attractive investment platforms for many private equity buyers interested in the business services sector.

IT staffing, especially those companies with a more relationship-oriented direct sales model generating higher gross margins and double digit EBITDA margins, continues to be the single most attractive temporary staffing segment for acquirers, as 29 of the 122 transactions reported in 2016 involved companies whose predominate service offering was IT staffing. Healthcare staffing companies are also seeing significant buyer interest with 24 transactions completed in 2016. The professional staffing segments (including IT, Healthcare, Finance & Accounting and Creative/Digital staffing) all continue to see the most widespread demand from buyers and strongest valuations. The light industrial / clerical staffing segment continues to produce a healthy number of transactions, with 24 reported in 2016, although typically at lower valuation multiples as compared to professional staffing.

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