Human Resources & Staffing Services Market Update: Strong Labor Force Stimulates HR & Staffing Services Sector

HR & Staffing Market Continues To See Favorable Valuations and Healthy M&A Activity

Capstone Partners released its July 2022 Human Resources & Staffing Services Market Update, reporting that the Human Resources (HR) & Staffing Services sector has excelled since the resumption of hiring after the height of the pandemic. Due to the tight labor market, job seekers have gained substantial leverage in employment opportunities, driving demand for recruitment and onboarding services. Supported by the March 2022 U.S. unemployment rate nearly matching pre-pandemic levels, the recovery of hiring trends has spurred healthy levels of revenue and merger and acquisition (M&A) activity in the HR & Staffing Services sector throughout 2021 and Q1 2022.

Buyer appetite for higher-margin businesses has remained consistent, specifically in areas of Professional Staffing such as Information Technology, Healthcare, and Life Sciences. Easing supply chain issues have created a strong backdrop for M&A activity in the Industrial Staffing segment, with improved balance sheets piquing buyer interest. HR and staffing services providers with a history of financial stability, growth prospects, and experienced management teams continue to be categorized as high-quality assets, commanding buyers’ attention and receiving favorable valuations. HR & Staffing sector M&A transaction multiples have averaged a robust 3.1x EV/Revenue and 10.3x EV/EBITDA over the past three years, outperforming the broader Business Services industry average of 1.5x EV/Revenue and 8.4x EV/EBITDA, according to Capstone’s Middle Market M&A Valuations Index.

Although the Industrial Staffing segment continues to generate significant amounts of M&A activity, purchase multiples are typically lower than the Professional Staffing segment as market cyclicality drives lower margins. Deal activity in the HR & Staffing Services sector will likely remain strong through 2022 as previously paused transactions are revisited, buyers continue to target synergistic acquisitions, and more potential sellers enter the market, especially with the rapid growth of the Temporary and Temporary-to-Permanent Staffing segments.

Also included in this report:

• How truncated holding times have led to elevated levels of private equity activity in the sector.
• Why the buyer pool for employment background screening services providers has grown rapidly over the past year.
• Projections for improved revenue and bill rate figures in the Industrial Staffing segment.