In the current economic environment, staffing companies are increasingly finding organic growth challenging due to factors such as the contraction of vendor lists, difficulty in scaling effective sales teams, opening new markets without “boots on the ground” and evolving client demand. This is particularly evident in the IT and Engineering staffing sectors, where traditional growth strategies have become less effective. Consequently, many firms are turning to inorganic growth or mergers and acquisitions (M&A) as the primary path to expand, leading to a surge of buyers in the market.
Market Dynamics: A Surge in Buyers Amidst Hesitant Sellers
IT staffing industry performance has been anemic with IT employment declining year-over-year in 2024, according to the Monthly TechServe Alliance IT Staffing Index and Technology Staffing Dashboard. This follows 2023 where the median firm contracted by 4.6% according to the TechServe Alliance Operating Practices Report. In response, companies are increasingly seeking growth through acquisitions, intensifying competition among buyers.
While there are a large number of potential buyers, many potential sellers have been sitting on the sidelines. The same market conditions hindering organic growth—such as economic uncertainty and flat or declining profitability—have caused many business owners to hesitate putting their companies up for sale. Many of these sellers are hoping for the return of the historical highs in revenue and earnings we saw in 2021 and 2022. This reluctance to sell among many has led to a supply-demand imbalance: a plethora of active buyers vying for a limited number of available firms.
Implications for Sellers: Capitalizing on a Favorable Market
For IT and Engineering staffing firms contemplating a sale, the current market presents a unique opportunity. The strong demand from buyers, coupled with the scarcity of sellers, has created a seller’s market where valuations are elevated for good companies with increasingly favorable deal terms. Companies entering the market now often receive multiple offers, enabling them to negotiate a better sale price and more a favorable deal structure.
This trend is underscored by the recent sale of IRIS Consulting Corporation (Minnesota) to Georgia-based Javelin Consulting and Staffing, which garnered interest and offers from multiple buyers, through the TechServe Alliance M&A Marketplace Program. The program also this past month facilitated the sale of a Midwest firm to a New York-based acquirer after the buyer evaluated multiple offers.
Strategic Considerations for Potential Sellers
Business owners contemplating a sale should consider the following to maximize their enterprise value and receive favorable deal terms:
- Strong Financial Documentation: Ensure that financial records are thorough and transparent, providing potential buyers with confidence in the firm’s stability and profitability. Financials should follow industry-standard format making it easy for a prospective buyer to glean the financial health of the company.
- Operational Efficiency: Streamline operations to highlight the firm’s capability to maintain profitability, even in the face of challenging market conditions.
- Client Diversification: A diversified client base makes a firm more attractive by reducing dependency and the associated risk with reliance on revenue attributable to only a handful of clients.
- Scalable Processes: Implement processes that can easily scale, appealing to buyers looking to expand the business further adding to the potential synergies of an acquisition.
Conclusion
The current landscape of the IT and Engineering staffing firms presents a compelling case for owners considering a sale. The combination of numerous active buyers and a limited number of sellers has created a market favorable to those willing to consider the sale of their business. In many cases, enhanced multiples can make up for earnings (EBITDA) not being at a firm’s historical peak. By strategically positioning your firm and capitalizing on an M&A market favorable to sellers, business owners considering an exit have the potential to receive a premium for their company along with favorable deal terms.
To learn more about today’s M&A market for IT & Engineering staffing firms and explore the valuation of your business, please reach out to John Larson or Steve Norris, consultants with TechServe Alliance’s M&A Marketplace team.
