Mergers & Acquisitions Buyer Survey
A LOOK INTO WHAT THE MOST ACTIVE M&A PARTICIPANTS IN THE MARKET ARE LOOKING TO DO IN 2022
M&A Overview
Mergers and acquisitions activity in the staffing and workforce solutions industry rebounded sharply in 2021, following a pandemic-induced double-digit decline in the prior year. Over 170 transactions were completed across all segments versus 115 transactions in 2020.
The surge in last year’s activity can be attributed to, among other things: “pent-up” pandemic-induced demand, strong industry performance across most sectors, a backlog of deals that were placed on hold from 2020, and continued favorable monetary policy. “To say M&A activity in 2021 was strong would be a vast understatement. Of all the companies that made acquisitions, it was great to see the large strategic organizations get involved”, says the CEO of Pittsburgh, PA-based System One Holdings, Troy Gregory. “They understand it’s not enough to grow organically and that acquisitions need to be a part of their growth strategy. Private equity, which is heavily invested in the space, has this playbook down to a science and understands how important consolidation is to maximizing the synergies inherent in a platform.”
With revenue growth projected for the industry to decelerate, uncertainties with the omicron variant, a tightening labor market and fed policy, will the momentum in M&A activity carry-forward into 2022, or will activity level-off or taper? Recent evidence suggests that strong M&A activity will continue as 15 completed transactions were announced through the first half of January, including two high-profile deals (Addison Group and Favorite Healthcare Staffing).
To gauge sentiment, we surveyed 20 of the most active dealmakers in the industry to gain insight on how they are positioning their acquisition strategies, as well as what they’ll be looking for in an acquisition.
The Survey
How many acquisitions has your organization made in the last three years?
The survey included both strategic and strategic backed private equity buyers of all shapes and sizes. We believe the surveyed group encompasses the broader market of M&A participants as a whole. All participants completed at least one transaction in the past three years, with 40% completing four transactions or more.
Did your organization have a strategic plan in place to make an acquisition(s) in 2021?
All but one of our participants had a strategic plan to include acquisitions as part of their growth strategy in 2021. Despite not having a plan, they completed one acquisition. This is very consistent with the interest we experienced in the five transactions we completed as a firm last year. In each of those transactions, not only were there multiple offers, several other prospective acquirers had serious interest and actively engaged us in discussions before deciding it was not the right deal for them.
How many acquisitions did your organization make in 2021?
Has the pandemic adversely affected an acquisition your organization was involved in?
40% of participants indicated that at least one transaction they were involved in was adversely affected by the pandemic. Half were placed on hold and eventually completed, while discussions were eventually terminated for the other half.
What is your general outlook for the staffing and workforce solutions industry in 2022?
All participants indicated they have a positive outlook for the industry this year. Some even went as far as to say they are extremely bullish and point to the demand for labor expertise at its highest level as a catalyst.
Of course, sentiment is always capable of change and what buyers feel today, could be very different as we progress through the year. As a firm, we will continue to gauge sentiment and provide updates.
Are acquisitions part of your organization's growth strategy for 2022?
90% indicated that acquisitions are a part of their growth strategy in 2022. Whether these plans come to fruition or not is still yet to be seen. Interestingly, none responded with “No” to this question. Many noted they expect there to be continued consolidation in the market and that those that sit on the sideline risk losing market share.
Is your organization currently involved in m&a discussions with a potential target?
70% of our survey participants indicated they are currently involved in M&A discussions. This could be at any stage of the transaction lifecycle e.g. early discussions, negotiations, or even due diligence (following the signing of a Letter of Intent).
What is your organization's main motivation for pursuing acquisitions?
There are a number of reasons why acquisitions are part of an organization’s growth strategy. However, each transaction must have its own strategic logic. In our experience, acquirers in the most successful and accretive transactions have specific, well-articulated value-creation ideas going in. For less successful deals, the strategic rationales tend to be vague.
The majority of our participants indicated that growth and/or an increase in market share was their primary motivation for an acquisition(s), while others were interested in entering a new vertical/niche or acquiring an attractive customer base.
Rank the following in order of importance when it comes to an acquisition target.
We asked our survey participants to rank key characteristics of companies they look to acquire in order of importance. Profitability ranked highest, with growth potential and services
offering/skillsets provided a close second and third. An acquisition target’s geographic footprint was pretty far down the list with most ranking it as the least important attribute.
- Profitability
- Growth Potential
- Service Offering/Skillsets Provided
- Strength of Management Team/Leadership
- Customer List
- Geographic Footprint
Apart from differences in valuation expectations, what do you consider to be the biggest challenge in completing a transaction?
Differences of opinion in valuation expectations between buyers and sellers are as common as you might expect. However, outside of valuation, what do buyers view as being the biggest challenge in bringing a transaction across the finish line?
It comes as no surprise that negotiations of a definitive purchase agreement (“DPA”) would be at the top of the list of challenges from the perspective of a buyer. Patience is required on both sides as the DPA and supporting documents/agreements supersede all prior agreements and understandings.
Other challenges were: differences in company culture; non-committal sellers; lack of available diligence information; and lack of confidence in the target’s financials.
Does your organization have a dedicated team or individual(s) that lead your M&A efforts?
Summary
Of our survey respondents, the sentiment for M&A in the staffing and workforce solutions industry for 2022 was resoundingly positive and leaves us very encouraged about the year ahead.
Understanding our survey is just a small sample size, how the year will actually play out is still yet to be seen. However, we believe our group of participants to be a fair representation of the broader M&A market as we included a wide spectrum of buyers, not just the largest names in the industry.
We will continue to monitor sentiment throughout the year as we gauge activity on our own engagements and speak with M&A participants, which occurs regularly and will update the survey accordingly.
Annual M&A Activity Since 2010
There’s an incredible amount of money that’s still sitting on the sidelines just waiting to be deployed from both Strategic and Private Equity buyers.
Announced Transactions
Announced Transactions (cont’d)
Selected Momentum Advisory Partners Transactions
