M&A in a Post-COVID World
Insights and trends from SIA Research
The global pandemic has created an economic crisis like no other. While the depth of revenue decline may seem familiar to those who survived the 2008/2009 downturn, the suddenness of business deceleration has been unprecedented. Such a dramatic shock to the system might seem like a perfect environment for a lively bout of M&A in the staffing sector but, if anything, the market has been quite subdued.
Another key difference with the current recession has been the levels of government support on offer to help business during lockdowns such as loans, tax relief, cash grants and wage support – none of which had been available in previous recessions. Because of this, we’ve not seen the same levels of panicky sellers we would normally expect in a downturn, though, if the economy is still fragile when government support schemes end in 2021, such panic may have been deferred rather than eradicated.
According to our 2020 Staffing Company Survey, EBITDA multiples for UK acquisitions ranged from as low as 0.5% to 7.5% showing the wide range of value attributed to differing types of staffing businesses. The pandemic has had the effect of reinforcing the value proposition of three key staffing sectors: IT, healthcare and life sciences. These sectors were already popular with acquirers before the onset of COVID-19, but they have proven more resilient than other parts of the staffing industry during the crisis and continue to have good long-term growth prospects. Coming into 2021, we can expect these sectors to be a strong focus for acquirers.
One interesting trend is that staffing firms no longer just acquire other staffing firms. Many have sought to broaden their service portfolios in recent years to offer their clients services other than temporary staffing and permanent placement. Since Q1 2019, more than a quarter of M&A by staffing firms has targeted talent acquisition technology and other types of workforce solutions. Aside from technology-related acquisitions training/reskilling has been an area of focus as staffing firms look to maximise opportunities in labour markets suffering from acute skills shortages.
What else will make your staffing business attractive to acquirers in a post-COVID world? Aside from those positive factors M&A brokers might traditionally highlight, the following are likely to attract increased scrutiny given the lessons learned in 2020:
- A tech stack sitting safely in the cloud rather than on an in-house server
- A flexible work environment where consultants and other members of staff are able to work effectively on a remote basis
- A tech-savvy management team which has been able to take advantage of new and emerging talent acquisition technology to improve/automate their services
- Well-being programmes for staff
- Diversity & Inclusion programme for own staff and temporary/contract workers
- A tested disaster recovery/business process continuity plan
- A staffing business that operates in a niche within a niche – the more specialist and focused your services are, the more defensible your business is
- No over-reliance on permanent placement, though a balance of both temp/contract and perm helps
The UK has traditionally been an attractive market for acquirers (responsible for 55% of all transactions in Europe in 2019). Brexit and the introduction of IR35 into the private sector may take the shine off of the UK in the short-term, especially when there are faster-growing staffing markets to be found, notably in the Asia Pacific region. But, as the third largest staffing market in the world and the largest in Europe, acquirers are unlikely to sit on their hands and overlook the UK for long.
For ambitious staffing firms looking to expand abroad through acquisition, the most popular European staffing markets aside from the UK have been the Netherlands, Germany and Sweden, all countries with better economic prospects than the UK in 2021, while the US remains a perennial favourite for UK firms given strong cultural and language ties.
An interesting new trend is the growing interest from Japanese staffing firms to expand into Europe through acquisition. The most recent example is Outsourcing Inc. (Japan’s third largest staffing firm) acquiring CPL Resources (Ireland’s largest staffing firm) in a deal worth approximately €318 million. Buoyed by a relatively strong local market and the support of an enthusiastic investment community, Japanese staffing managers are likely to be even more active in Europe next year.
For both buyers and sellers, 2021 will be providing better opportunities than 2020.
Staffing Industry Analysts (SIA) is the global advisor on staffing and workforce solutions. The company’s proprietary research covers all categories of employed and non-employed work including temporary staffing, independent contracting and other types of contingent labour.
Much of the data in this article is sourced from SIA’s Staffing and Workforce Solutions M&A Database (available to members only) which has tracked global acquisitions of, and by, staffing firms since Q1 2014. SIA Members also have access to an M&A Funders and Advisors Directory.
John Nurthern, Executive Director Global Research