Talent acquisition and retention are the biggest factors limiting growth of portfolio companies this year, many private equity firms have told PE Hub lately. So it’s not surprising that many PE firms have invested in companies that focus on recruiting and staffing. PE Hub has observed a flurry of these deals since the beginning of the year.
A look at employment data sheds some insight. The total nonfarm payroll employment rose by 372,000 in June while unemployment remained steady, for the fourth month in a row, at 3.6 percent, according to the US Bureau of Labor Statistics. Interestingly, the stats further show that unemployment essentially reverted to pre-pandemic levels when it registered at 3.5 percent in February 2020. And let’s not forget that last year’s much heralded Great Resignation got a tremendous boost (and a whole lot of publicity) from a healthy job market.
So whether it’s Littlejohn Capital’s buyout of Dayton, Ohio-based Alto Healthcare Staffing, announced in January, or Halifax Group’s recent investment in the Houston-based The Liberty Group, which provides staffing and screening services to the real estate sector, PE is bypassing naysayers and betting that the jobs market will remain strong (even if depressing reality might belie that assumption).
For nearly all of these deals, the target company’s growth was a common denominator for the PE firms to acquire or invest in them.
That was certainly the case with Littlejohn’s acquisition of Alto. Speaking about the deal at the time, Angus C. Littlejohn III, president of Littlejohn Capital, was bullish about the company’s “dynamic growth” and its services that “have become a more viable and easily accessible option for healthcare facilities across the country.”
Infinedi Partners followed suit in February when it announced it was investing in Chicago-based staffing firm LaSalle Networks, hailing the company’s growth as an enticement for the deal. “LaSalle is a best-in-class talent solutions provider helping clients access the intellectual capital they need, when they need it…” said Carter Harned, a partner at Infinedi, in a statement.
Then in May, HCAP Partners got into the act, investing in FleetNurse, a provider of on-demand healthcare staffing solutions. Like all the other aforementioned deals, the catalyst was “the company’s rapid growth, resulting in its revenues increasing more than threefold in 2021,” as noted in the release on the transaction.
Also garnering attention that month was TA Associates investing in iCIMS, a provider of cloud-based talent acquisition solutions. Backed by Vista Equity Partners and Susquehanna Growth Equity, iCIMS’ client base includes such high-profile brands as CVS Health, Target and IBM. For TA, making the investment in a company that prides itself on helping to employ more than 34 million people around the globe, was a no-brainer.
“iCIMS is a clear market leader in talent technology, helping customers navigate the increasingly competitive and complex recruiting market, one of the most pressing issues facing businesses today,” said Ashutosh Agrawal, a managing director at TA, in a statement.
Move up to June and you have the Halifax Group investing in Houston-based The Liberty Group, a provider of specialty temporary staffing, executive search and employee screening services to the multifamily residential real estate industry. This deal, whose financial terms were undisclosed, saw the exit of Liberty’s previous owners Merit Capital Partners and Six Pillar Partners.
On the investment, Halifax Principal Davis Hostetter lauded Liberty’s client service approach that “has resulted in annual client retention in excess of 98 percent among top clients” as a key draw.
We expect to see PE continue to gravitate toward the staffing/recruiting space in light of the increasingly precarious economy.