The Impact of M&A in the Staffing Industry

According to the World Economic Forum, the US labor market is more vital today than it has been for over 50 years. In January, the US unemployment rate dropped to its lowest in 53 years at 3.4%. This is despite mass layoffs in the tech sector since late last year.

For staffing agencies, this means more placement opportunities for companies dealing with the increasing difficulty of finding candidates that fit specific roles. With an estimated shortage of 2 million workers, the labor gap is expected to continue for the next decade. The staffing industry will continue to play a vital role in minimizing this shortage’s effects.

The staffing and recruiting market has continuously evolved since its exponential growth in 2021 and 2022. This year, the US staffing industry is projected to reach a market size of $216.2 billion. That’s worth more than the combined revenue size of the UK, Japan, Canada, Sweden, Belgium, India and France.

With 12,554 staffing companies in the US as of 2023, the market leaves room for new players. As recruiters from countries like the UK, numbering over 28,000 agencies in a saturated market of $57.6 billion, turn their attention towards the more lucrative US labor market, staffing companies here are in for much competition.

US staffing agencies must step up to better serve the industry and attract more clients. To an increasing number of staffing firm owners, M&A is a viable option. It has been an effective strategy for improving bottom-line profitability through company expansion and new revenue generation. For staffing firms, the benefits of M&A can advance the staffing industry into the new age. Here are a few ways that M&A is already impacting the staffing sector.

Expansion of service offerings. Consolidation of staffing firms through a merger expands the company’s service offerings. For example, a tech firm specializing in staffing cyber security personnel merges with a firm that delivers talent for app development can become a company with the expertise to provide qualified staff for both cyber security and app development. By uniting multiple core competencies into one organization, both firms gain the opportunity to capture a broader client base.

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Competitive pricing. Merged companies can take advantage of economies of scale by sharing recruitment resources like Applicant Tracking Systems and Candidate Relationship Management software. Companies can also benefit from a complete merger by dropping operational expenses by consolidating departments like marketing, HR, finance and more. These convergences of departments and resources directly impact the bottom line through cost savings, among other things, allowing for more competitive pricing.

Fewer key players. Acquiring to build up an enterprise is an excellent strategy to strengthen a company’s position as a key player in the industry. In turn, M&A also reduces the number of companies on the field. Merging with other businesses helps companies increase value, build additional services, gain advanced technology, buy assets and investments, and more. Increased deal activity will mean the continuous growth of key industry players.

Reduced competition. Staffing agencies that compete for the same market are known to merge and gain considerable market share for specific areas, services or expertise. This strategy reduces competitors in the market and is potentially more lucrative with former competitors sharing the wins of a bigger pot. These types of mergers require proper due diligence and solid backing from an M&A company that excels at these deals.

M&A’s impact on the staffing industry cannot be overstated. Staffing agencies should consider M&A as a strategy to become powerhouses of efficiency, innovation and value. Such corporations have the capacity to help alleviate the problems of the labor shortage through increased productivity and an expanded reach, not to mention reaping the benefit of increased profitability and a higher valuation.

Eric Allison

Eric Allison
Eric Allison is the CEO of Staffing Venture Capital, an investment firm and business accelerator with a focus on the staffing and recruitment industry. He can be reached at eric (at) staffingvc (dot) com.

Eric Allison

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