The American Staffing Association (ASA) estimates there are about 20,000 staffing and recruiting companies in the U.S. which altogether operate around 39,000 offices. … indicating the industry is highly fragmented. Approximately 55% of companies and 74% of offices are in the temporary and contract staffing sector. This provides a robust, diverse pool of preferred acquisition prospects and these smaller companies offer the greatest upside in value creation.
Foundation service lines of the industry have historically been clerical, administration and light industrial – commonly referred to as “commercial”. While those lines are still prominent today, the industry has seen a significant number of niche’ service lines introduced over the past 25-30 years – IT, healthcare, engineering, accounting & finance – and service delivery models – MSP (Managed Service Provider), VMS (Vendor Management System), onsites, outsourcing and PEO (Professional Employer Organization).
These specialty service lines and delivery models often enjoy higher bill rates and gross margins and are sources for a vertical penetration strategy into a company’s existing customer base.
The cumulative effect of each of these factors, combined with a prolonged economic expansion, has resulted in a period of exceptional growth and market penetration for the industry. This effect was demonstrated in June 2017 when the industry established a new high workforce penetration rate of 2.07%.
For managers and investors interested in roll-ups or consolidations, the staffing industry fragmentation can provide significant opportunities to gain revenue and efficiencies from infrastructure and offers several tactical options proven successful in classic roll-ups. EBITDA, expense and gross margin enhancement opportunities exist in:
- Revenue and profit synergies through expansion of service lines
- Expense reductions through prudent, select integration
- Introduction, communication and implementation of industry best practices
- Operational consolidation to corporate executives and industry experts
- Advanced, predictable, and proven sales techniques & training
- Advanced recruiting processes and technologies
- Scaled purchasing power
- Portfolio-wide technology applications
- Referral and cross-selling synergies
- Multiples arbitrage
- Niche and sector opportunities
- Multiple full or partial exit opportunities
There exists ample and numerous opportunities for general consolidations and specialty projects within the staffing and HCM industry.
The construction of the company can be morphed, contrived, or developed in a hybrid fashion to focus on professional services, general employment and online service delivery, or to minimize the effects of economic swings. This allows for a prudent expansion through typical brick and mortar while leveraging the latest technologies in sales, operations and recruiting, and, blending service lines to hedge revenue and margin risk.
Acquisition Company Profiles
Talant Staffing is currently seeking acquisition candidates whose companies fit the profile below. While not all-encompassing, the characteristics and parameters closely define “platform”-type purchases that would be leveraged in a commercial, healthcare, and IT staffing strategy:
- Headquartered and with significant field operations in the Southeastern to Midwestern United States; preferably with 10+ office locations
- $2.0 Million+ EBITDA
- Established operating history (7-8+ years)
- Growing annual revenues with a significant % in clerical and light industrial – subsequent service-line acquisitions in healthcare and IT, as well
- Large, diverse customer base with low attrition and recurring business
- Recent investments in the “latest gen” information systems, training & processes
- Long-tenured, well-allocated, and balanced field and corporate management team
Following a platform acquisition, strategies for both organic and acquisitive growth will leverage operational and financial resources with emphasis on:
- Expansion, enhancement, or standardization of sales, marketing, recruiting, incentive plans, and training
- Increasing YoY sales of existing offices and branches
- Introduction and roll-out of new service lines
- Roll-out of new branch offices
- Add-on acquisitions
- Propagation of “best-of-breed” recruiting tools, technologies and processes
- Expansion and application of management, sales and operations best practices
WHITEPAPERS & RESEARCH
Whitepaper: Managing in a Recession
We are well into one of the longer recoveries in U.S. history. It’s no surprise that there are talks of an impending slow down. When will it happen? How severe? How long will it last? What will be the trigger? Drawn from practical and industry experience, here are some approaches proven successful at managing in and through a recession. Read more…
Whitepaper: Tightening Labor Market
Staffing companies have two primary objectives; one, recruit people, and two, market their services. Much like a bakery that makes bread at a factory then sells its bread to stores and distributors, we hire people and put them to work. Qualified candidates are our product. With low unemployment comes a scarcity of talent. This represents a challenge and a unique competitive opportunity. Read more…