May 1, 2023

HR & Staffing Services Market Update: Sector Remains A Bright Spot

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Founder-Led HR & Staffing Services Businesses Attract Strong Buyer Interest

The Human Resources (HR) & Staffing Services sector has been a bright spot in an otherwise uncertain economic period. Sector demand has been driven by a strong labor market, which has continued to defy historical recessionary standards. As of February, the U.S. unemployment rate registered at 3.6%, well below the rate of 10.0% witnessed at the height of the Global Financial Crisis in October 2009, according to the U.S. Bureau of Labor Statistics.1 U.S. labor has undoubtedly been in high demand, with 10.8 million job openings as of January, exceeding the 10-year monthly average of 6.8 million job openings between 2013 and 2023, according to the U.S. Bureau of Labor Statistics.2 Organizations’ desperation for talent amid a national workforce shortage has driven demand for recruitment and placement services, propelling sector optimism. While attending Staffing Industry Analysts’ (SIA) March Executive Forum North America conference, Capstone heard from business leaders and owners in the space who expressed an optimistic outlook for the HR & Staffing Services sector. This sentiment is further supported by abundant revenue and merger and acquisition (M&A) opportunities.

Unwavering demand for talent has resulted in vigorous HR & Staffing Services M&A activity, with many acquirers targeting middle market businesses with experienced leadership teams.

Bob BalabanManaging Director and Head of Business Services Investment Banking, Capstone Partners

Private Equity Appetite Drives HR & Staffing Services Deal Activity

M&A activity in the HR & Staffing Services sector has remained healthy through year-to-date (YTD), with 40 transactions announced or completed. Although sector deal flow has slightly declined compared to a strong YTD 2022, private equity buyers comprised a record portion of transactions, accounting for 45% of deals to-date in 2023. Private equity’s persistent appetite for add-on deals (40% of YTD transactions) bodes well for middle market players in the space as sponsors look to roll up participants serving key end markets including Healthcare, Information Technology (IT), and Industrials.

HR & Staffing Services sector participants with diversified offerings such as contingent staffing, direct sourcing, and workforce development have been highly sought after acquisition targets, enabling sponsors to build upon a variety of revenue streams. In a recent example, Perwyn-backed Westerwood Global acquired NSTAR Global Services in February for an undisclosed sum. NSTAR provides numerous staffing services for IT and industrial clients including direct sourcing, contract staffing, temporary-to-permanent staffing, and workforce development services. The acquisition is expected to bolster Westerwood's suite of technical managed services in the U.S. market. "Westerwood’s experience and expertise in managed workforce solutions and its broad geographic reach will allow us to immediately grow and enhance our capabilities, while maintaining the high-quality service our customers have come to know us for," said Darrell McDaniel, President and CEO at NSTAR, in a press release.3

M&A purchase multiples in the HR & Staffing Services sector have averaged a robust 9.0x EV/EBITDA from 2020 through YTD, outpacing the broader Business Services industry average of 8.2x EV/EBITDA during the same period. Elevated M&A pricing has been primarily driven by sector defensibility amid a heightened interest rate environment. Sector participants with strong EBITDA margins and diversified offerings will likely continue to be attractive acquisition targets and command healthy valuations throughout 2023.

Capstone Speaks with Nobel Investments on HR & Staffing Acquisition Strategy

HR & Staffing Services

Atta Tarki, Managing Partner

In March, Capstone spoke with Atta Tarki, Managing Partner at private equity firm Nobel Investments and Founder and Executive Chairman of executive search firm ECA Partners, to discuss the current state of the HR & Staffing Services space and how investment theses have shifted with economic volatility. Atta is the author of the book “Evidence-Based Recruiting” (McGraw Hill) and a columnist at Harvard Business Review, where he regularly provides analysis on the state of the Recruiting market.

As Managing Partner at Nobel Investments, Atta leverages his experience as an entrepreneur and growth strategy consultant to help HR technology and staffing services companies with good business models accelerate their growth. Prior to founding Nobel Investments, Atta started and ran his own executive search firm, ECA Partners, which doubled in size every two-to-three years under Atta and his team’s leadership. Nobel Investments draws from Nobel’s philosophy of continuous innovation, quality work, positive impact, and mindset toward building lasting businesses. Nobel Investments currently has two portfolio companies in the space—ECA Partners and TalentCompass.

What differentiates Nobel Investments from other firms?

We are purely focused on the Human Capital space as an investor. There are a lot of investors on the venture capital front that heavily focus on the future of work, but not on the private equity arm. We are a growth-focused investor, trying to come in and help recruiting and HR technology firms grow through investments in their sales team, processes, partnerships, and connections within the industry.

What are your key investment criteria for investments in the HR & Staffing Services sector and have you become more selective in evaluating opportunities due to the current economic environment?

In the Recruiting space, we are primarily looking at companies with $50 million in revenue or more. In the HR Technology space, they should have at least $2 million of EBITDA. In terms of becoming more selective, yes, but not just because of the current economic environment with Silicon Valley Bank. If you look at the past two years, we have experienced the tightest labor market in American history. You can see that through layoff numbers, with around 1% of the labor force laid off per month, which has been more or less consistent from the beginning of 2021 to the end of 2022. We have never had so few workers laid off in U.S. history. In the data that was tracked before 2021, the lowest month recorded layoffs at 1.3% of the labor force. To me, that means it has been pretty good to be a recruiting or HR technology company in the past two years.

There was a short period during the pandemic months when it was pretty awful to be a recruiting or HR technology company. At this time a lot of participants went through downsizing or layoffs. Many firms went through an environment where they had just downsized to having record amounts of business. In some cases, that has inflated their profitability and revenue numbers. As a result, I am particularly cautious around hit-and-run type sellers who want to sell their company based on their last twelve-months EBITDA with a full exit and no participation going forward. There needs to be a thoughtful discussion around COVID bumps and economic uncertainty. There also needs to be some structure in place that makes it fair to the exiting founder as well as me as an investor when the results come in. It is hard to get comfortable as an investor in the current environment if the founder does not want to have some skin in the game in terms of the success of the business going forward.

How have your portfolio companies been impacted by current economic volatility, and have you had to pivot your respective growth strategies as a result?

Our portfolio ECA Partners is an executive search firm purely focused on the Private Equity space, working with private equity funds and their portfolio companies. Some of our volume is driven by clients’ deal volume. When private equity firms are acquiring businesses, they typically want at least one new management team member whether it is a CEO, a CFO, or another key C-Suite executive. When deal volume fell over the last few months it did impact ECA Partners slightly. However, we have seen an increased focus on value creation work and portfolio work within the Private Equity space which has helped pick up the business that was lost due to reduced M&A volume.

During an economic downturn, the sales process for our portfolios becomes more straight-forward—there either is a strong need or there is not. There is less of the value-based sell. Tactically speaking, we told the sales teams to increase their meeting targets rather than focusing on creating custom solutions. In this environment, the discussion is centered around whether a client has a budget or not. In strategy discussions with our portfolio companies, we concluded that specialized firms win, especially in this environment. Clients are telling us that they want specialization in terms of end market, geography, and service offering.

What are the key drivers of demand for HR & Staffing participants in 2023 and over the next five years?

What we have seen is that labor force participation dropped significantly during the pandemic, with a net three million workers that have left the workforce in the past two years. This has created an uneven recovery in the labor market, which may cause heartache for employers as they struggle to find enough workers.

Over the next five years, the outlook for the HR Technology and Recruiting verticals is positive. If we look at the percentage of total company expenditures on marketing and advertising, the number is about 5% to 6%. Based on that percentage, Google has built a trillion-dollar empire. There are massive companies in that space. Well, about 65% of total company expenditures are on salaries and wages. We have just started to scratch the surface on how much value HR technology and recruiting companies can add to the economy. There will be a lot of innovation there and a lot of companies have the opportunity to be big names in the future.

To discuss buyers' investment criteria, provide an update on your business, or learn about Capstone's wide range of advisory services and HR & Staffing Services sector knowledge, please contact us.


  1. U.S. Bureau of Labor Statistics, "Civilian Unemployment Rate,", accessed March 21, 2023.
  2. U.S. Bureau of Labor Statistics, "Job Openings and Labor Turnover Survey,", accessed March 21, 2023.
  3. NSTAR Global Services, "Westerwood Global Acquires NSTAR Global Services,", accessed March 21, 2023.
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