Advice for Entrepreneurs, Mergers and Acquisitions, Pre-sale Planning, Human Capital Mgmt, Business Services, Selling a Business, Family Business, Partial Liquidity
The truth of the matter is that there are not a whole lot of private equity firms that make investments in the staffing industry. As you can see in the chart below, there have been only about 17 PE firms making staffing deals over the last few years. (Data is from CapitalIQ.) The most active firms have been ABRY Partners, Claritas Capital, and Platinum Equity Partners.
So why aren’t PE buyers particularly interested in staffing?
- The number one reason for the lack of PE interest in the staffing sector is the cyclicality of the industry. Even though temporary staffing and IT consulting are supposed to grow at a CAGR of 4.6% to 5.6% between 2012 and 2022, per SIA’s most recent staffing industry forecast, the impact of recessions on the sector is well known.
- Second, PE firms, despite their reputation as risk takers, are actually quite risk averse. They typically use a significant amount of leverage when acquiring a company, and they want to be sure the company can pay back the debt. Because of that, one of their top investment criteria is a high level of recurring revenue.
- Third, the highly fragmented and competitive nature of the market, combined with the disintermediation created by VMS systems, has led to a situation where competition is often solely based on price. From a PE firm’s point of view, that looks like a race to the bottom.
- Last, there are only 19 publicly-traded staffing firms in the United States and only 10 of those have revenue above $1 billion. For a market that is projected to be about $109 billion in 2014 according to Staffing Industry Analysts, this means the market is very fragmented, and it would take a lot of deals for a PE firm to build a large enough company to take public. That being said, with the acquisition activity of strategics at high levels, a sale to a strategic should present a viable exit option.
If you’d like to talk to me about who the most likely acquirers are for your staffing business, feel free to connect with me directly.