Human Resources & Staffing Services M&A Update – April 2025

Narrow Labor Market Catalyzes HR & Staffing M&A

Capstone’s latest Human Resources (HR) & Staffing Services Market Update reports that the U.S. Labor market has undoubtedly remained tight, creating a demand-rich environment for HR & Staffing Services sector participants. Historically low unemployment levels have driven elevated revenue and acquisition opportunities in the sector—particularly for Staffing segment businesses that can alleviate hiring struggles for organizations in search of skilled personnel. The HR segment of the market has also experienced robust demand and merger and acquisition (M&A) attention, largely driven by heightened employment costs. Total U.S. compensation cost year-over-year (YOY) growth has remained relatively stable over the past three years despite a significant Consumer Price Index reduction, indicating a sustained heightened cost environment for employers. As a result, many employers have turned to outsourced HR providers to optimize compensation, payroll, and benefits packages. While the HR segment is anticipated to remain at the forefront of HR & Staffing M&A activity, Capstone expects both segments of the market to draw strong buyer interest throughout 2025.

The HR & Staffing M&A market has remained frothy, with transaction volume continuing to build through the first quarter of 2025. Sector transaction activity in 2024 rose 9.4% YOY. To date, dealmaking in the space has grown 9.3% YOY. This increase can be attributed to heightened acquisition interest among private strategic and financial buyers, many of which have pursed M&A opportunities to expand both HR and staffing capabilities and capitalize on the growing need for talent retention amid a tight Labor market. Private strategic buyers have comprised the majority of deals year to date (YTD), followed by private equity (PE) add-on transactions. Sponsor activity in the space has increased YOY as many PE firms have looked to bolster portfolio companies with value-added HR services. The HR & Staffing M&A market has continued to elicit strong pricing from strategic and financial buyers. Healthy HR & Staffing M&A valuations have largely been driven by acquirers’ willingness to pay premium multiples for businesses in the HR segment including compensation consulting, background screening, and talent management services providers.

Equity financing activity in the HR & Staffing Services sector continued to normalize in 2024, largely driven by a broader market correction in startup valuations. Total sector growth capital deal value fell 27.4% YOY in 2024, with YTD 2025 levels slightly outpacing the prior year period. The number of equity financing deals in the space followed a similar trend. Growth equity deal volume declined by one transaction in 2024 and YTD 2025 volume has ticked up YOY. The median pre-money valuation for sector participants moderated in 2024 as growth capital investors increasingly targeted smaller startups with innovative offerings such as artificial intelligence (AI).

Also included in this report:

• Why the HR segment drew the lion’s share of HR & Staffing M&A volume in 2024.
• A breakdown of M&A multiples in the space, including historical averages.
• What is driving elevated demand and M&A interest in the Employment Background Screening Services subsegment.
• How sector growth capital activity has fared through YTD, including several notable equity financing rounds.

The expert investment banking professionals on Capstone Partners’ Human Resources & Staffing Services Team work with leading middle market companies operating in the HR & Staffing market to advise with their strategic decision-making in order to maximize financial outcomes at every stage of the business lifecycle. Our firm has developed a full suite of corporate finance solutions, including M&A advisory, debt advisory, financial advisory, and equity capital financing to help privately owned businesses and private equity firms address any need, ranging from growth and financial or operational advisement to an ultimate exit transaction. To learn more about the contents of this report, or about the benefits of starting a relationship with our HR & Staffing Investment Banking Team, contact us.