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

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.