The HR services industry is on an M&A hot streak lately.
In the US, the space is gaining momentum amid a strong labor market. With unemployment rates remaining below 4% since January 2022, employers are increasingly turning to HR-focused companies for services like recruiting, personnel management, and more.
This heightened demand has sparked a flurry of M&A activity in the space. In just the last few months, the following deals have made headlines:
- Relation Insurance Services acquired H Group Benefits, a health insurance provider, for an undisclosed amount in July.
- Accel-KKR bought a majority stake in INX Software, an Australia-based compliance, workforce management, training, and reporting software company, for an undisclosed amount in late July.
- HIG Capital acquired Alight’s payroll and professional services business for $1.2B in March.
And the rise in remote and hybrid work is opening up even more opportunities for middle market investors across the staffing, payroll & benefits, compliance, performance management, employee training, and workplace safety segments.
In this PE Playbook, the Grata team has put together the need-to-know trends for investors considering making moves in the HR services market, including:
- Top roll-ups in the space
- How the industry is fragmented
- Where VCs are placing their bets in the industry
The market map above is not intended to be an exhaustive representation of companies in the space.
Companies that provide services that fall into multiple segments are categorized in this report by their primary offering.
Industry Overview
Market Distribution
Geography
Source: Grata
There is no shortage of HR services companies in the US. Naturally, the most populous states have the highest concentration of organizations in the space, but even the less populated states are well covered relative to their workforce.
Plus, with the prominence of remote and hybrid jobs post-pandemic, the reach of companies in the industry is less limited by geography than ever. An HR services company headquartered in Nebraska, for example, could serve businesses on the east coast, and vice versa. This also expands the pool of potential targets for investors looking to snap up multiple HR services companies.
Ownership
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Source: Grata
Even with massive companies like PricewaterhouseCooper and KPMG on the scene, the HR services industry offers a wealth of opportunity for middle market investors.
There are over 84,000 independently owned companies in the space that are ripe for acquisition.
Segment Distribution
Source: Grata
This report focuses on the following segments of the HR services industry. Grata users can see a curated list of some of the companies used to create this report in the links below.
- Staffing: Companies in this category offer talent management services including recruiting, temporary staff hiring, executive searches, high-volume hiring, consultant vetting, and more.
- Payroll & Benefits: These companies provide solutions to manage employee payroll, insurance, retirement accounts, and other employer-provided perks.
- Compliance: This category comprises companies that aim to help employers and employees ensure that they are compliant with labor laws, data privacy regulations, company policies, and more.
- Performance Management: Companies in this category offer solutions for employee performance reviews, feedback, goal management, and engagement.
- Employee Training: These companies offer solutions and services for corporate learning and development, employee skill building, video tutorials related to company policies, and more.
- Workplace Safety: Companies in this sector focus on injury prevention, risk management, integrated disability management, and safety consulting.
Public Comparables
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Source: Grata
Looking at the chart above, the staffing segment stands out as its multiples fall below the industry average across the board. But for investors interested in roll-ups, the staffing sector could be the perfect opportunity — if they focus on companies that are using tech effectively.
As shown in the previous section, companies that offer staffing solutions account for just under 73% of the entire HR services industry. While the strong labor market in the US is driving demand for staffing and talent management, there likely isn’t enough differentiation among staffing companies for all of them to establish strong customer bases. The market is saturated and seems to be hindering its own growth.
By consolidating, investors could eliminate redundancies and create more breathing room for staffing companies that are strengthening their offerings with effective, innovative tech — particularly AI.
Given the average multiples for the staffing sector, investors could likely see low acquisition prices. And because of the rise of remote and hybrid work, location doesn’t have to be an issue, which broadens the pool of potential targets.
Dealmakers interested in more concentrated segments with established higher performance rates should consider the performance management and payroll & benefits sectors. Demand for these services is consistent and not limited by industry, making them safe bets.
Private Comparables
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Source: Grata
The rise in remote work is also driving demand for performance management solutions. With teams increasingly distributed across multiple locations, employers are looking for tools to help them stay connected with their employees and on top of their performance. As a result, performance management is the highest-performing segment in terms of average revenue and growth. And with its total capital raised on the lower end of the range for the HR services industry, now is a great time for middle market investors to make moves in the space.
Employee training and workplace safety, the two smallest and least funded segments, could be excellent options for investors who:
- are looking to establish themselves as a leader in a smaller space, or
- already have a strong reserve of other HR services companies and are looking to expand their relevant offerings.
VC & Growth Comps
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Source: Grata
This graphic is not intended to represent a complete list of VC deals in the HR tech space in the last several months.
Companies across the HR services industry are increasingly integrating technology into their products, which is attracting major VC investments.
Just in the last four months, early, mid-, and late-stage companies in the HR tech space have raised multi-million-dollar rounds. For example, KarmaCheck, which offers employee background check services, raised a $45M Series B round led by Parameter Ventures in late June.
At the Seed stage, Wilya raised $4M from Ironspring Ventures around the same time. Wilya provides workforce management software solutions for factories.
HR Services Acquisitions
Top Roll-Ups
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Source: Grata
The HR services industry has seen a notable amount of roll-up activity in the last several years. Constellation Software, which provides enterprise software, professional services, and automation solutions, leads the pack with 81 HR services companies acquired. The firm’s acquisitions span across all of the segments covered in this report, as it seeks to expand its enterprise and professional services offerings.
Major insurance companies like HUB International, Arthur J. Gallagher & Co, Brown & Brown, and Acrisure Re have primarily focused on the payroll & benefits sector.
Most Active Strategic Buyers in the Last Year
Source: Grata
The most active strategic acquirers in the last year have honed in on the payroll & benefits sector.
The majority of these buyers are insurance firms, like Arthur J. Gallagher and HUB International, expanding their offerings for businesses.
Notable Deals
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Source: Grata
Workplace Safety: Peoplesafe Acquires OK Alone
Personal safety tech company Peoplesafe purchased OK Alone, a Canada-based employee safety monitoring company, in October for an undisclosed amount.
The deal coincided with Peoplesafe’s launch of its new personal safety risk management software, Nexus. It also expanded Peoplesafe’s presence in North America.
If you’re an investor interested in companies like OK Alone, try these:
Performance Management: Sea Capital Acquires TalentCloud.ai
In November, Malaysia-based PE firm Sea Capital completed its $3M acquisition of TalentCloud.ai. The startup, which is also based in Malaysia, provides performance management software modules along with a full suite of human capital management (HCM) products.
If you’re an investor interested in companies like TalentCloud.ai, try these:
Payroll & Benefits: Kakao Pay Acquires Paymint
South Korea-based fintech Kakao Pay purchased Paymint, which enables workers to access their earned wages ahead of their scheduled payday, for $30.6M in December. Kakao Pay reportedly plans to incorporate Paymint as a subsidiary.
If you’re an investor interested in companies like Paymint, try these:
Staffing: Kelly Services, Inc. Acquires Motion Recruitment
In June, talent management solutions company Kelly Services completed its acquisition of Motion Recruitment from Littlejohn & Co, a Connecticut-based private investment firm. The deal reportedly bolsters Kelly’s offerings and scale in North America, and enhances its recruitment process outsourcing solutions around the world.
If you’re an investor interested in companies like Motion Recruitment, try these:
Compliance: Deel Acquires Hofy
Payroll and compliance tech company Deel purchased Hofy last month, marking its third acquisition thus far in 2024. Hofy is based in the UK and provides solutions for managing devices for remote workers.
Alex Bouaziz, Deel’s co-founder and CEO, said that the deal helps lay the foundation for a future IT product called Deel IT.
If you’re an investor interested in companies like Hofy, try these:
Employee Training: KKR & Co. Acquires Instructure Holdings
PE firm KKR purchased global learning management system company Instructure Holdings for $4.8B in late July. The deal took Instructure private. In addition to corporate solutions, Instructure offers educational software for K-12 schools as well as colleges and universities.
If you’re an investor interested in companies like Instructure Holdings, try these:
Get the Most Out of the Playbook
If you’re an investor interested in making moves in the HR services space, Grata can help you put the insights in this article into action.
From in-depth market research to sourcing to pipeline management and relationship nurturing, Grata’s end-to-end dealmaking platform streamlines your workflows so that you can close more deals.
Schedule a demo today to get started.
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