Q3 2024 – Staffing Industry Insights

The North American staffing industry experienced a moderate pace of M&A activity in Q3 2024, with 24 announced transactions. This represents a 29% decrease from the heightened activity observed in Q2, which, as we anticipated in our previous report, proved to be an anomaly with a remarkable 75% increase over the relatively quiet Q1. While several factors contributed to this moderation in activity, the ongoing buyer’s market continues to present unique opportunities for those prepared to act decisively.

• Segment Performance: Other Professional (7 deals), which includes staffing verticals excluding IT and Healthcare, such as Engineering, Finance & Accounting, Creative, etc., emerged as the most active segment in Q3, followed by Search (6 deals) and IT Staffing and/or Consulting (5 deals). It’s worth noting that healthcare staffing M&A in Q2 and Q3 saw relative strength despite that this segment has been experiencing the steepest revenue declines within the broader staffing industry. This suggests that strategic buyers and investors recognize the long-term potential of the healthcare staffing sector and are willing to capitalize on current market conditions to acquire valuable assets. Light Industrial/Commercial was the quietest segment among the major categories, with only two transactions.
• Mega-Deal Impact: The quarter’s most significant transaction was The Vistria Group’s acquisition of Soliant for a reported $2.5 billion, followed by Cognizant’s acquisition of engineering staffing powerhouse Belcan LLC for $1.3 billion.
• Note: In our Q2 2024 report, we incorrectly reported that Cognizant completed its acquisition of Belcan LLC. Although the two organizations entered into a definitive agreement in Q2, the transaction formally closed in Q3.
• Private Equity’s Role: Private equity firms participated in five transactions during Q3, demonstrating their ongoing interest in the staffing industry. Two of these transactions involved the establishment of new platforms, while the other three were add-on acquisitions to existing platforms.

Momentum Insights

As we anticipated in our Q2 report, the North American staffing M&A market cooled in Q3, reflecting a more cautious environment. While Q2’s surge provided a temporary boost in M&A activity, underlying challenges persist, including declines in the broader staffing industry and a scarcity of perceived high-quality acquisition targets.

Furthermore, the upcoming presidential elections and escalating geopolitical tensions in the Middle East are fueling uncertainty. With less than a month to go until the election, the race is seemingly up for grabs. Many buyers have indicated they are postponing significant strategic decisions until after the election, fearing potential policy shifts and economic volatility. This hesitancy is hindering M&A activity, as markets dislike uncertainty.

This cautious sentiment is evident in the continued prevalence of “smaller” deals. The majority of transactions involve companies in the lower middle-market. While larger deals, like Soliant are still occurring, they are less frequent. This trend is likely to persist until we see improvements in the staffing industry and a reduction in economic and geopolitical uncertainty.

Despite these challenges, the Federal Reserve’s official shift to a rate-cutting cycle, beginning with a 50-bps cut last month, should help fuel M&A activity in 2025. With the Fed signaling further cuts over the coming year, the cost of financing acquisitions becomes increasingly attractive. This lower cost of capital could incentivize companies to pursue deals sooner rather than later, potentially leading to a surge in activity as buyers seek to capitalize on favorable borrowing conditions.