The state of the economy directly shapes the recruitment & staffing market, with this sector often being the first to decline during economic downturn. Naturally, M&A activity follows suit with a slowdown in deal volume in the first half of year. However, Q3 has reinforced the sector’s resilience, with notable activity picking up across Staffing transactions globally.
US Light Industrial Market – Increased Activity
Across the quarter we saw an uptick in deals completed in Light Industrial staffing, with particular emphasis on the US market. The resurgence of activity contrasts trends earlier in the year, with many agencies disposing of their light industrial divisions in favour of higher margin work and new growth objectives. Nonetheless, as the largest staffing market globally, the SIA estimates the Light Industrial sector to be valued at $38.7 billion in the United States. Sixty agencies dominate 85% of market share, meaning consolidation is integral for agencies to compete in the marketplace.
Notable deals included Surestaff’s acquisition of Cardinal Staffing, which completed as part of plans to be as one of the largest Light Industrial staffing firms in the Mid-West region. With 11 locations in Ohio and Michigan, Cardinal’s offering is expected to strengthen the wider Group’s service reach and add to its existing 39 branches. Receiving private equity backing from Owner Resource Group in 2020, we expect to see Surestaff continue this impressive organic / non-organic growth trajectory.
Similarly, TERRA Staffing Group expanded in the Mid-West through its acquisition of ASG Staffing. As its first deal since investment from Hastings’ in January 2023, the acquisition was in line with TERRA’s eastward expansion strategy, adding 10 new branches to the group’s operations.
We also saw Active Staffing complete on Phoenix Staffing as a strategic move to expand national footprint. Given the very nature of the blue collar / temporary staffing space, it’s imperative to have geographical coverage for any light industrial player to gain market share. With branches in New Jersey, Florida, Texas & Georgia, the acquisition enables Active Staffing to gain a foothold in branches in Houston, Texas, Hyattsville and Maryland. With both companies established from a lineage of family-run operations, it’s clear that a cultural alignment fuelled these negotiations.
Other noteworthy transactions in the Light Industrial space included Staffwork’s acquisition of SourcePoint Staffing and Ascend Staffing’s acquisition of Employment Connections. There was also activity on the other side of the pond in Europe, with Challenge-trg closing on Halo Recruit and Jansen & De closing on Flex-Job in the Netherlands.
Healthcare – Market Resilience
Deal activity in Healthcare remained buoyant in Q3, with these agencies continuing to be an attractive target given the labour shortages in medical staffing. Headlines in the US market included Acacium’s closing of SUMO Medical Staffing, a Locum Tenens agency specialising in Physicians & Advanced Practise Providers. The acquisition comes after Acacium’s market-entrance in January 2022, where they made a platform investment into Favorite Healthcare Staffing. SUMO is set to expand Acacium’s nationwide presence, whilst further diversifying sector specialism in an area of the market they didn’t previously supply in.
Domestic US transactions included Elite365’s acquisition of Kobor MedSearch. Elite365 is a very active player in the space, experiencing rapid growth as a result of both organic growth and strategic acquisitions. The acquisition went hand in hand with the company’s strategy to expand its locum tenens offering, with SIA expecting this market to grow by 10% in 2023 and 8% in 2024. Kobor MedSearch specialises in the anaesthesia staffing market, emphasising the increasing need for specialisation in areas of healthcare.
We also saw activity closer to home with M3 acquiring Messly to continue its UK expansion following the Remedium deal last year. Utilising its own tech platform in Japan, Messly enhances M3’s tech integration in the UK. The acquisition will provide a leading recruiting marketplace platform which connects the UK locum workforce with recruitment agencies. Enabling seamless integration, the platform allows agencies to find quality, pre-screened candidates.
Additional UK activity included Fremman Capital’s investment into NHS insourcing business, Medinet. Marketed as new practise to help NHS organisations reduce waiting times, insourcing has become increasingly attractive as an investment opportunity, demonstrated by Volpi Capital’s sale to Fremman Capital. Private equity has growing reach in the UK health system, having expanded into private hospitals, recruitment agencies, child and elderly care, foster and mental health services.
Whilst these agencies will continue to remain attractive given the high demand for medical professionals, strategic investment can be challenging because of the political volatility affecting the sector. As a vertical in Recruitment, Healthcare is the most politically centric with the UK market particularly fragmented and impacted by changing legislation. For example, recently there has been a lot of stigma surrounding Healthcare staffing agencies and their detrimental role on increasing NHS costs for locum spend. However, the REC reports that rising spend since the Pandemic is more to do with the rates charged by NHS staff banks and off-framework providers. These agencies do not have to comply with pricing caps, meaning there should be some sort of distinction between framework compliant agencies and off-framework providers in the media. In addition, Q3 has been a tough period for many healthcare agency owners, with abnormal climates impacting the level of demand which has a knock-on effect on NHS budgets. The winter surge and increased NHS spend that many usually experience has been delayed, signifying how agency revenues can be governed by legislation implementation.
IT – Continued Activity
Much like last quarter, IT featured heavily in Q3 with a resurgence in PE interest demonstrated in deals such as Twenty20 Capital’s investment into Austin Fraser. Specialising in tech recruitment across all sectors, the investment is expected to bolster Austin International’s growth capabilities whilst enhancing their industry-leading service. Twenty20 has a track record of strategic investments in staffing, acquiring Impellam Group’s regional and healthcare businesses earlier this year.
Additional PE interest was seen in wider Europe, with Nordian acquiring a majority stake in intermediary and secondment agency, BlueTrail Group. Supplying c400 interim professionals every year, the company focusses on highly trained interim IT professionals who are active in the semi-public domain. Another deal in the Netherlands included World of Talents’ acquisition of Obvious People, an agency specialising in Salesforce personnel. Highly acquisitive in the market, this deal ties in with their ongoing strategy to become the leading HR network in the Benelux region.
Notable deals happened in the US & Canada amongst the large IT players, with Agilus (7th largest staffing firm in Canada) closing on ProVision. Formerly a division of Hire Technologies Inc, ProVision was divested at a purchase price of $4.5 million. Other transactions included Corsica Partners’ acquisition of Alora Search Partners, operating in a niche area of IT in the software, robotics & cybersecurity space. We also saw some sizeable US deals feature in Q3, with Cegeka completing on Computer Task Group as part of its market-entrance into the US. With a total implied equity value of c$170million, the acquisition is expected to enable Cegeka to become a truly global provider of digital transformation services.
As the Light Industrial, IT & Healthcare verticals were very active in Q3, it will be interesting to see what markets come to the forefront towards the end of this year. With M&A beginning to pick up, Q4 will also be an important period for preparation as many will aim to get ahead of the curve and start sourcing viable targets for potential completions in 2024.