By: Neal England

Human Capital Management Segment Overview:

• Human Capital Management M&A activity remained robust in Q3, with a high volume of deal flow
  supported by continued economic recovery.
• While the economy remains strong, scarce labor caused by a widespread trend of workers leaving
  their jobs, 4.4 million leaving their jobs in September up from 4.3 million in August, sent the quits rate
  surging to a historical high. The industries most impacted were in retail and hospitality.
• The staffing industry is experiencing a dramatic rise in digital transformation disruption coming from
  staffing firms launching digital strategies and tech firms with a digital-first focus implementing
  architectures to deliver efficiencies with improved UX for candidates and clients.
• Companies of scale with predictable financials, attractive growth projections, and bankable
  management teams continue to be of high interest to private equity companies as platform investments
  in sectors ripe for consolidation and tuck-in acquisitions.
• Interest in HR Tech remains incredibly strong – demand for talent continues to increase. As employees
  prioritize flexibility in hours/location and the holistic value they deliver, employers are examining work
  patterns and leveraging technology to narrow the gap and prioritize engagement and retention.
• On the staffing M&A front, buyer interest has been focused on higher-margin sectors, particularly in the
  professional staffing segment, including IT, healthcare and life sciences. A good supply of financial and
  strategic buyers remains active seeking add-ons and platforms.
• Similar to when ACA was enacted, PEOs are once again proving their worth during this pandemic age
  by safeguarding their clients through PPP loans, covid protocols, remote work shifts, and vaccine
  mandates with compliance and cost-saving strategies.
• Investors are aware of the behavioral shifts created by the COVID-19 pandemic and have been
  attracted to targets that are capitalizing on trends such as digitization to manage a more dynamic and
  efficient workforce.

Q4 2021 & 2022 Key M&A Drivers

• To the extent already in the market, we expect a strong push by buyers and sellers to get transactions
  closed in the fourth quarter, ahead of any impending tax changes in 2022.
• Heightened deal flow is creating a scarcity of third-party providers such as attorneys and quality of
  earnings firms, which is placing pressure on closing timelines for some transactions.
• Healthy capital markets, continued vaccine deployment, rising consumer spending and broader
  economic recovery are expected to underpin M&A activity well into 2022.
• Tight labor markets and dynamic workplace environment projected to keep HCM M&A active,
  particularly relating to digitization and HR tech.

Read the full Newsletter here.