Workforce Management Work and HR Tech & Payroll Services Industry Investment and M&A Deal Briefing August 2024 update on investments, M&A deals, and profit strategies to capitalize.
Placement funding and financing Investments Deals
- More than $1 Trillion to be deployed by USA private credit and equity investors; tech innovation and platform consolidation to continue at a faster pace in Q3 and Q4 than previous 6 quarters (PitchBook)
- More than 1,000 acquisitions since 2020 for work tech
- Category leaders command 2x pricing premium (and ½ the cost of customer acquisition)
- Deal trending categories include: AI, Intelligent Automation, Embedded Experience, Talent Intelligence, Upskilling, WFM
Deal Considerations
- Valuations at all-time high for Work Tech in 2021; first half of the year revealed declining valuations for service providers, with widening valuations for software splitting firms into either below historical average or above average premium valuation
- Increase in competition from non-traditional industry Vertical SaaS solutions as well as global leaders
- 30 to 40% revenue growth for niche industry vertical specialists (versus single digit growth for generalists)
WFM Industry Landscape Summary
More than 2,000 payroll service providers in North America across various models: payroll, HR, accounting, software, EORs, PEOs, BPOs, Benefits, etc.. Payroll add-on products and services are numerous across the backoffice, tax, compliance, HR, and FinTech solutions. The majority of the market is narrowly segmented by size and/or vertical. Valuations near an all-time high for premium providers. For solution providers, Digital Transformation (Platformization, Embedded, Verticalization, AI, Intelligent Automation), represents a BIG value opportunity, but also a rising cost and risk. Rising costs of compliance and the rapid pace of technology R&D investments, coupled with non traditional well-funded entrants into the market; and the payroll industry is at the early stages of a seismic market share re-alignment.
- Pre SaaS, the majority of the market share dominated by the top ten payroll providers. In the near-future, the top 10 payroll providers will not resemble the current logos.
- In 2010 the public payroll providers controlled 80% of the market. Today, they still control 80% of the market but the % per public firm has been diminished. Market size and growth by segment available upon request.
Investment Trend. Billions in capital deployed to WorkTech investments across global payroll and EOR software, earned wage access, expense management, vertical WFM SaaS. More financing and capital options with an abundance of capital available from Private Credit and Private Equity.
Deal Theme. Consolidation into platforms (“Platformization”) &/or Verticalization (Vertical SaaS WFM) driving M&A deals. Also, significant market share expansion and consolidation underway by industry leaders across Payroll, PEO, EOR, and Vertical SaaS models adding WFM capabilities such as labor analytics, advanced scheduling, AI workflow solutions, and niche solutions.
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