KBS - Human Resource Management and Human Capital Management - Market Insight

MARKET INSIGHT – HUMAN RESOURCES AND HUMAN CAPITAL MANAGEMENT INDUSTRY

M&A ACTIVITY CONTINUES TO RISE WITHIN THE HR AND HUMAN CAPITAL MANAGEMENT INDUSTRY The UK human resources (HR) and human capital management (HCM) industry is on a trajectory of continued growth. This sector comprises companies that deliver outsourced HR services, talent management, benefits administration, compliance support and workforce strategy solutions. These Human Resources Outsourcing (HRO) providers manage essential functions such as recruitment, onboarding, payroll, performance management, employee relations, training and regulatory compliance. The sector is growing rapidly due to changing workforce expectations, rising regulatory complexity, and the demand for flexible, scalable HR solutions. Organisations of all sizes are outsourcing HR to cut costs, enhance employee experience, ensure legal compliance and focus on strategic goals. This has increased the demand for subscription-based, recurring revenue models, making HRO providers highly attractive to investors and acquirers. KBS Corporate’s extensive experience in managing successful transactions, allied to our ongoing engagement within this dynamic market, has provided us with a unique perspective. We have conducted an in-depth analysis of the company sales landscape within this sector, offering valuable insights into the key trends shaping sales activity. This includes the strategic moves of leading acquirers and the vital role of private equity in driving industry consolidation. We present significant industry transactions, highlighting notable deals and market dynamics that are reshaping the competitive landscape - along with a detailed overview of completed transactions facilitated by KBS Corporate - offering a practical look into real-world M&A examples within the human resources and human capital management space.

CURRENT LANDSCAPE The human capital management sector experienced a surge in M&A activity around 2021–2022. Deal volume hit a historic peak of 474 transactions globally in 2022 – the highest in a decade. This was in stark contrast to pre-pandemic levels and well above the average of 266 deals per year from 2016–2020, reflecting a subsequent increase in HR tech and services acquisitions.

Continuing this trend in 2024, through Q3 there had been $7.2bn of invested equity in HR tech and 37% of M&A transactions in the sector during the third quarter had taken place in Europe.

The UK HR M&A market has been resilient. In the recruitment sub-sector, deal flow held steady at roughly 15 completed deals per quarter throughout 2023 and into 2024. While this pace is below the 2022 spike (when 75 UK recruitment deals closed post-lockdown), it remained strong with 58 deals in 2023 and ticked up to 63 deals in 2024. Both strategic buyers and private investors continue to view HR tech and services as attractive targets. According to market advisers, HR tech “remains a key focus area for investors” due to unprecedented demand for workplace digitization and employee experience tools. Even in Q1 2023, amid economic uncertainty, the HR tech M&A market was active with 45 deals, and total disclosed deal value more than doubled from the previous quarter, with Silver Lake completing a $12.5bn acquisition of Qualtrics.

Continuing this trend in 2024, through Q3 there had been $7.2bn of invested equity in HR tech and 37% of M&A transactions in the sector during the third quarter had taken place in Europe.

+ ADOPTION OF AI AND AUTOMATION A key trend is the integration of AI and advanced analytics into HR tools. Industry experts say “AI will, over time, change everything” in HR, with HR tech firms rapidly adding AI-driven features. Acquirers are actively seeking companies with strong AI capabilities – for instance, recruitment software providers with AI-based assessments are in demand. This trend reflects how HR M&A is riding the broader wave of automation, as buyers want to leverage AI to improve hiring decisions, employee engagement and workforce analytics. KEY TRENDS + CONSOLIDATION INTO INTEGRATED SUITES HR tech vendors are moving from point solutions to comprehensive platforms. Rather than buying many standalone tools, employers want unified systems. In response, larger HCM players are acquiring niche software to build end-to-end suites. As one report notes, HR tech stack providers “continue to combine point solutions into comprehensive suites”. This has driven deals where, for example, a payroll software company acquires a performance management start-up to offer a one-stop HR solution. The result is a consolidation trend - fragmented HR tools are merging under broader HCM umbrellas through M&A. + DATA-DRIVEN HR AND PEOPLE ANALYTICS Another trend is surging demand for people analytics and data-driven HR decision tools. HR leaders want actionable insights on employee engagement, performance and retention. As one industry review highlighted, there is a growing demand for analytics platforms in HR tech. This has translated into deals - bigger players are buying HR analytics start-ups to augment their offerings. Access to rich HR data (often enhanced by acquisitions) not only differentiates products but also helps train AI models. This access gives firms a competitive edge in the era of ‘big data’. M&A is thus being used as a short cut to acquire data and analytics capabilities that would be hard to build from scratch. + EMPHASIS ON DEI AND COMPLIANCE Diversity, equity and inclusion (DEI) and compliance have become key themes influencing deals. Employers face rising pressure from regulators and stakeholders to improve DEI metrics and adhere to labour regulations, so HR tech that addresses these needs is attractive. HR firms are dedicated to creating solutions for unbiased hiring, pay equity and policy compliance as a result to meet their clients’ needs.

KEY DRIVERS AND MOTIVATIONS FOR ACQUIRERS + EXPANDING CURRENT PRODUCT OFFERINGS Trade acquirers seek targets that fill gaps in their HR solutions portfolio. Their M&A strategy is driven by offering a more comprehensive suite to their clients. For example, an HR software suite provider might acquire a niche recruitment or engagement platform to round out its offerings. + GEOGRAPHIC AND MARKET EXPANSION Many trade acquirers pursue M&A to enter new markets or customer segments. In the UK, overseas buyers have been very active, with American firms acquiring UK HR companies to gain a foothold in the UK. These cross-border acquisitions allow strategic buyers to access new client pools and regions quickly. + ACQUIRING INNOVATION (TECH OR TALENT) Rather than developing new capabilities in-house, trade buyers opt to buy innovative companies to stay ahead. For example, Zoom acquired Workvivo to enhance its employee engagement capabilities. The motivation is to import cutting-edge technology with the skilled teams behind it. + RESPONDING TO CLIENT NEEDS FOR ONE-STOP SOLUTIONS Clients are increasingly looking for ‘one-stop shop’ solutions, preferring to deal with fewer vendors for their HR needs. This pushes trade acquirers to broaden their solution spectrum through M&A. For example, UKG (Ultimate Kronos Group) acquired Immedis, a global payroll provider. UKG’s aim was to integrate Immedis’ multi-country payroll into its HCM suite, providing a more complete solution for customers. Trade buyers are motivated by the ability to better serve their customers’ end-to-end HR needs, which often means acquiring the capabilities they lack.

EBITDA MULTIPLE RANGES IN THE HUMAN RESOURCES AND HUMAN CAPITAL MANAGEMENT SECTOR

Source: Delancey Street Partners

TALENT ACQUISITION (EV/ REVENUE)

WORK TECH (EV/ REVENUE)

50.0x - 45.0x - 40.0x - 35.0x - 30.0x - 25.0x - 20.0x - 15.0x - 10.0x - 5.0x - 0.0x -

0.0x -

DSP Index: Talent Acquisition

Nasdaq

DSP Index: WorkTech

Nasdaq

5.0x -

0.0x -

7.6x

6 Yr Average 17.2x 10 Yr Average 14.3x

9.8x 7.6x

5.0x -

6 Yr Average 6.1x 10 Yr Average 4.9x

3.5x

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WORKFORCE MANAGEMENT (EV/ REVENUE)

DSP Index: Workforce Management

Nasdaq

9.0x -

7.6x 7.3x

10 Yr Average 7.4x 6 Yr Average 7.2x

4.0x -

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In the UK Human Resources sector, EBITDA multiples for company sales typically range from 5x to 15x.

Globally, participants in the HR and staffing services sector have continued to garner strong M&A pricing as acquirers have increasingly submitted competitive bids for quality assets with loyal customer bases. From 2021 through to July 2024, the average sector M&A multiple was 8.2x – maintaining a consistent level since 2015.

AVERAGE HR & STAFFING SERVICES M&A MULTIPLES REMAIN STRONG

(EV/EBITDA)

8.2x

2021 - YTD 2024 2018 - 2020 2015 - 2017

8.0x

8.2x

8.2x

0x

2x

4x

6x

8x

10x

12x

14x

Year-to-date (YTD) ended March 31 Source: Capital IQ FactSet, PitchBook, and Capstone Partners

FACTORS DRIVING HIGHER VALUATIONS AND EBITDA

MULTIPLES + RECURRING REVENUE

Businesses with predictable, recurring revenue streams are garnering higher valuations in this sector. HR software or services that have strong customer relationships (e.g. long-term contracts or subscription models) are valued higher. Investors note that outsourced HR providers with recurring projects and an entrenched client base can command premium pricing. + HIGH CUSTOMER RETENTION AND ENGAGEMENT Client retention is another valuation booster. HR tech vendors with high net revenue retention mean customers consistently renew and expand usage. Similarly, companies known for strong user engagement (e.g. an employee engagement app widely adopted within client organisations) demonstrate value to acquirers. + SYNERGISTIC VALUE AND INNOVATION A strategic fit significantly elevates a target’s valuation. If acquiring a particular HR tech firm would bring highly complementary technology or capabilities that unlock synergies, strategic buyers are often happy to pay a premium. Moreover, recent deals show innovative offerings, e.g. platforms integrating AI drive higher valuations.

Even in Q1 2023, amid economic uncertainty, the HR tech M&A market was active with 45 deals , and total disclosed deal value more than doubled from the previous quarter, with Silver Lake completing a $12.5bn acquisition of Qualtrics.

WHICH FACTORS DRIVE GROWTH IN THE UK HUMAN RESOURCES AND HUMAN CAPITAL

MANAGEMENT INDUSTRY? + DIGITAL TRANSFORMATION AND CLOUD MIGRATION:

A fundamental growth driver for the HR management industry has been the digital transformation of HR processes. Companies are shifting away from manual systems to cloud-based HR platforms, boosting demand for modern HR software. The ease and affordability of cloud solutions (offered on a SaaS basis) means even mid-market firms can adopt advanced HR tech. This trend has only accelerated in recent years, contributing to significant market growth. + REGULATORY AND COMPLIANCE NEEDS: Evolving labour laws and compliance requirements act as a catalyst for HR market growth. In the EU and UK, for example, GDPR and data privacy rules forced HR departments to adopt more sophisticated data management tools. Moreover, new regulations around gender pay gap reporting, diversity disclosures and worker classifications mean companies need better HR systems to stay compliant. This is resulting in companies needing to invest more in screening and HR compliance services. Additionally, areas like benefits and payroll frequently see regulatory updates (tax changes, healthcare laws) that drive employers to update their software or outsource to experts. This creates continual demand for HR solutions that can handle complex, changing regulations, thus propelling market growth as organisations seek to avoid legal risks. + TECHNOLOGICAL INNOVATION AND AI: New technologies such as artificial intelligence, machine learning and blockchain are unlocking previously untapped efficiencies in HR. AI, in particular, has made a splash - from AI-powered recruitment chatbots to predictive analytics for retention, these advancements offer clear ROI to employers. As a result, firms are showing more interest in investing in HR Management technologies. These advancements in tech may be able to solve long-standing pain points such as similarity bias in hiring or manual paperwork.

STRATEGIC INTERESTS OF PRIVATE EQUITY AND INVESTMENT BUYERS IN THIS SECTOR One of the most compelling forces boosting M&A in 2025 involves private equity firms, which are attracted to HR’s recurring revenue models. HR SaaS firms with subscription income, or HR outsourcing companies with long term client contracts, offer the kind of steady cashflows PE firms look for. The ‘sticky customer bases’ in HR (e.g. payroll processing relationships or software deeply embedded in HR departments) reduce business risk. + BUY-AND-BUILD PLATFORM STRATEGIES The HR industry’s fragmentation plays into PE’s interests. Many PE firms acquire a platform company in a segment and then pursue other add-on acquisitions to build it out. Therefore, a large portion of HR sector deals are PE-driven add-ons. In early 2024, roughly 30% of HR and staffing transactions were add-ons by sponsor-backed companies continuing their roll-up strategy. PE groups are actively consolidating the market, buying smaller competitors or complementary tech to bolster their platforms for eventual resale at a higher valuation.

The global HR software market size was estimated at $16.43bn in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 12.2% from 2024 to 2030.

KEY ACQUIRERS AND INVESTORS Major players in this sector include (please display logos of the following companies):

WHAT TYPES OF BUSINESSES ARE STRATEGIC ACQUIRERS PURSUING IN THE HUMAN RESOURCES AND HUMAN CAPITAL MANAGEMENT SECTOR? Tech-enabled Employee Self-Service (ESS) has risen in popularity in the HR sector. Firms providing advanced self service solutions are likely to become attractive targets for acquisition.

Other types of businesses include

• Employee engagement and experience solutions, e.g. Edenred’s £1.15bn acquisition of Reward Gateway. • Learning and development platforms, e.g. Lepaya acquired Krauthammer, a leadership training company. • Core HRIS and payroll tech, e.g. UKG’s acquisition of Immedis.

Employee engagement and experience solutions, e.g. Edenred’s £1.15bn acquisition of Reward Gateway.

M&A ACTIVITY IN THE HUMAN RESOURCES AND HUMAN CAPITAL MANAGEMENT SECTOR OHS, a prominent regional provider of high-quality health surveillance to a large client base, protecting employees and preventing risks in the workplace, was sold to Latus Group in a deal advised on by KBS Corporate. Lynne Harrison, Managing Director of OHS, commented: “I cannot recommend KBS highly enough. From start to finish, their professionalism, expertise and dedication were evident in every step of the process. Their commitment to excellence and client satisfaction is unparalleled.” OH SERVICES ACQUIRED BY LATUS GROUP KBS DEAL

AVANTUS ACQUIRED BY CIPHR GROUP

Ciphr, an HR software and solutions partner for medium and large organisations in the UK, moved into the employee benefits business with the acquisition of Guildford-based Avantus, which serves over 400 businesses globally.

THE COMPLIANCE GROUP ACQUIRED BY BLACK MOUNTAIN HR

KBS DEAL

Basingstoke-based outsourced employer services provider The Compliance Group was sold to Black Mountain HR, one of the Asia-Pacific region’s leading operators in this sector with offices in Hong Kong, Singapore and the UK.

PEOPLEPLUS GROUP ACQUIRED BY TALENT INTERNATIONAL

Nottingham-based recruitment firm Staffline sold its training subsidiary PeoplePlus to Talent International, a subsidiary of Swipejobs, for £12m, including £2m in deferred consideration.

FPR Group, a recruitment company with a workforce of over 1,000 on its books, was acquired in a deal that expands the southern presence of its acquirer, Kingdom Group. FPR GROUP ACQUIRED BY KINGDOM GROUP KBS DEAL

PAYCOR HCM INC ACQUIRED BY PAYCHEX INC

Paychex, an industry-leading HCM company which delivers a full suite of HR technology and advisory solutions, acquired Paycor in an all-cash transaction representing an enterprise value of approximately $4.1bn.

PENTO SERVICES INC ACQUIRED BY HIBOB INC

HiBob, the company behind Bob, the market-leading HR platform in the UK, acquired innovative cloud-based payroll automation platform Pento, which is headquartered in London.

PRIVATE EQUITY ACTIVITY

MANAGEMENT BUYOUT OF VIVUP BACKED BY OMNI PARTNERS

KBS DEAL

Vivup, a provider of employee health and wellbeing benefits to over 550 public and private sector organisations, supporting more than 1.5 million employees, was the subject of an MBO backed by private equity firm Omni Partners.

LDC-backed market-leading HR SaaS provider Talos360, based in Warrington, announced the acquisition of global performance management software platform Appraisd. Due diligence was facilitated by KBS sister company K3 Advantage. APPRAISD ACQUIRED BY TALOS360, BACKED BY LDC

NGA HR sold its UK mid-market and SMB (Moorepay) divisions to leading global investment firm Bain Capital, enabling the pursuit of growth opportunities to be accelerated through the partnership. NGA HR UK ACQUIRED BY BAIN CAPITAL

Mid-market private equity firm NorthEdge supported London-based Cezanne HR to acquire Dublin recruitment technology business Occupop, an innovative and sophisticated platform for attracting, managing and retaining talent. OCCUPOP ACQUIRED BY CEZANNE HR, BACKED BY NORTHEDGE

EQT, a purpose-driven global investment organisation, acquired Australian-founded PageUp, a global leader in SaaS talent acquisition, recruitment marketing and talent management solutions. PAGEUP ACQUIRED BY EQT GROUP

LIMERSTON CAPITAL EXITED ELEMENTSUITE AFTER 3.5X REVENUE GROWTH

After a six-year investment cycle, Limerston sold Watford-based Elementsuite to a strategic private buyer, having accelerated growth by driving the professionalisation and expansion of the company’s commercial function and upgrading systems.

MARKET INSIGHT

The global HR software market size was estimated at $16.43bn in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 12.2% from 2024 to 2030.

Meanwhile, the UK HR analytics market size was evaluated at $200.8m in 2022 and is ex-pected to grow at a CAGR of 15.0% from 2023 to 2030. This growth can be attributed to advancements in technologies, clients’ needs for a ‘one-stop shop’ service and a neces-sity to improve talent retention through utilising data. HR solutions have aided firms in efficiently managing employees. The impact of the Covid-19 pandemic positively influenced the UK HR management sector. Many companies have opted for remote working, leading HR management firms to continuously improve and adapt to this new working style, supporting the growth of the market. Fundamental HR services such as payroll, benefits administration and employee records had a revenue share of around 33% in 2023 due to their critical functions. Organisations increasingly demand more streamlined, integrated systems to handle these primary tasks efficiently and core HR solutions have become fundamental to operational success, thereby driving segment growth.

Meanwhile, the UK HR analytics market size was evaluated at $200.8m in 2022 and is ex-pected to grow at a CAGR of 15.0% from 2023 to 2030.