Q1 2023 – Industry Insights Report

Global mergers and acquisitions activity in all industries during Q1 2023 was down nearly 50%1 on a year-over-year basis due to rising interest rates, high inflation, and fears of a recession, which dampened the appetite of companies seeking deals. These factors, combined with concerns in the regional banking sector following the failure of Silicon Valley Bank, led to extraordinary levels of volatility and uncertainty in the first quarter.

Staffing Industry M&A – Momentum Advisory Partners noted 33 announced transactions of US staffing organizations in the first quarter of 2023, down 15% from the same period last year. Despite the decline, M&A activity in the staffing industry is expected to remain robust throughout the year based on the current run rate.

Acquisitions of IT staffing and consulting businesses were the strongest segment of the sector, with seven announced transactions in Q1. These deals focused on specific skill sets and areas of vertical market expertise.

Strategic buyers continued to dominate M&A activity in the sector, with only one transaction completed by a private equity group as a “platform“2 investment out of the 33 completed transactions in the quarter. However, it should be noted that 21% or seven transactions in the quarter were completed as “add-on” acquisitions. An “add-on” acquisition refers to the purchase of a smaller-sized company by a platform company of a private equity group, where the acquired company is integrated into the existing platform company. The buyers of an add-on are also considered “strategic” buyers. It is noteworthy that despite the lack of platform acquisitions in the quarter, private equity remains highly active in the staffing industry.

“As a firm, we are primarily focused on advising and representing founders and owners of staffing and IT consulting organizations in what we would call the “lower middle-market”, said Managing Partner at Momentum Advisory Partners, Akash Taneja. “These are businesses with annual revenues under $100 million. The majority of our completed transactions have been of companies between $10 million and $50 million in annual revenues. What we’ve observed is that these size of transactions have been somewhat insulated and immune to all the noise we hear in the broader financial markets. I believe it’s fair to assume that the same cannot be said about larger transactions, as there wasn’t a significant deal announced in the quarter.”