INSIDE THE PEO M&A MARKET: KEY INSIGHTS AND FUTURE OUTLOOK

Having recently returned from NAPEO’s 2025 Annual Conference and Marketplace, UHY’s national PEO practice is excited to share real-time insights into today’s highly active PEO M&A market.

Despite a challenging and uncertain macroeconomic environment, M&A activity in the PEO market has remained resilient. Today, we continue to see consolidation driven by both private equity platforms and strategic PEO buyers seeking scale, diversification, service line expansion, and technology capabilities, in an otherwise fragmented (yet consolidating) market. As a result, the PEO sector has become increasingly competitive from an M&A standpoint; a challenge for active buyers, and a positive for owners seeking a liquidity event in today’s market.

PEO M&A MARKET OVERVIEW

Over the past five years, consistent efforts to consolidate the PEO industry have led to sustained M&A activity. There have been more than 30 PEO acquisitions each year from 2020 to 2024, even as the universe of potential acquisition targets (and the quality of those targets) has become more limited. Similar to the broader M&A market, PEOs experienced record deal volumes in 2021 and 2022, with approximately 45 PEO transactions completed each year. Since then, deal volume has normalized to approximately 30 deals in 2023 and approximately 35 in 2024, generating an uptick in momentum that has carried into 2025.

In reality, UHY believes that these reported transaction numbers likely understate M&A activity in the sector. Beyond perhaps smaller transactions that simply do not get reported, we are seeing a meaningful shift among PEOs toward M&A targets with operating models beyond the core PEO model, particularly in areas such as payroll, and really any area that allows PEOs to advance their tech stack for the benefit of clients, similar to what Paychex accomplished in their acquisition of Paycor earlier this year.

“We actually saw a slower start to 2025, in terms of PEO M&A volume, than anticipated,” says Steve McCarty, CEO of UHY and leading member of UHY’s National PEO Practice. “Nonetheless, this year remains on pace to eclipse 30 deals by year-end, with approximately 25 transactions completed already through Q3 and advanced discussions with PEO owners in today’s market. This tells us that there remains a highly active and constructive PEO M&A market for both buyers and sellers.”

Looking beneath the surface, PEO M&A continues to be led by larger acquirors in the space, with the majority of targets being on the smaller side, or regional PEOs. More specifically, in 2025, approximately 80% of PEO acquisitions involved targets with revenue below $20 million. The most active acquirers of PEOs since 2020 are primarily public and private equity-backed PEOs, including Deel, Engage PEO, G&A Partners, One Digital, Prestige PEO and VensureHR, who have combined for more than 40 PEO transactions over that time.

“We are observing a clear trend whereby mid-tier PEOs are increasingly attempting to pursue M&A as a strategic means to execute their growth mandates…without success,” observes Jeff Solis, an audit partner and leading member of UHY’s National PEO Practice. “We are in active dialogue with several middle-market players who have expressed frustration competing against their larger PEO peers on marketed deals, and frankly are missing out entirely in cases where smaller PEO sellers are going directly to the larger consolidators in the space.”

As such, UHY believes (1) deal activity and momentum in the PEO sector will continue well into 2026, with both strategic acquirers and willing sellers actively looking to transact; (2) larger PEOs will continue to dominate the PEO M&A landscape; and (3) mid-tier, growth-oriented PEOs will need to be strategic and creative to generate the inorganic growth they desire in today’s market.

“We are working with an increasing number of mid-tier PEOs today, who are opting to execute a highly tactical, pro-active buy-side search process in today’s market,” says Bryan Besco, a leading member of UHY’s National PEO Practice. “And frankly, some of these searches are strictly focused on ancillary service lines, not just acquisitions of smaller PEO platforms.”

PEO VALUATIONS

Fundamentally, PEO valuations are driven by factors such as the number (and growth rate) of worksite employees (WSE), client retention, geographic reach, service offering mix, the ability to scale, and technology adoption (e.g., AI adoption). In general, when evaluating those value drivers, middle-market PEOs with regional coverage tend to see EBITDA multiples ranging from 7.0x-9.0x, with increased upside available for companies having strong gross margins and WSE’s in attractive end-markets. Higher multiples in the 10.0x-12.0x area are achievable for PEOs with more scale, typically generating over $10 million of adjusted EBITDA, with a national presence and high client retention.

“While these ranges are representative of the values being paid in the market today, we are seeing many deals where stretch values are being paid by larger industry consolidators,” suggests Matt Munn, a Tax Partner and leading member of UHY’s National PEO Practice.

The increasing incidence of “stretch values” being received by PEO sellers is not only a product of the fierce buyer competition in the PEO sector, but also due to value arbitrage among larger and publicly traded PEOs. To illustrate this point, several of the publicly traded PEOs are currently trading at high EBITDA multiples in the 18x-20x area. This means that they can meaningfully “overpay” for a PEO and still generate accretive results as the target’s EBITDA is effectively re-priced at their current, higher trading multiple. “Valuation arbitrage is one tool that smaller, privately held PEO buyers simply do not have at their disposal,” notes Matt Munn.

2026 PEO M&A OUTLOOK

Given the fragile state of the broader U.S. economy, which continues to be plagued by uncertainty, the range of potential outcomes for PEO M&A in 2026 is wide. That said, absent any significant adverse macroeconomic events or disruptions in labor demand (i.e., from tariffs, rising inflation, immigration policy, etc.), UHY believes that demand for growth via M&A will continue to be high on the priority list for PEO management teams. As such, UHY forecasts M&A volume in the PEO industry in 2026 will be in the 35+ area, a level similar to what we have observed annually since 2020, but slightly higher than where the current year is expected to close out.

An additional consideration for continued PEO M&A in 2026 comes in the form of favorable provisions in the One Big Beautiful Bill Act (OBBB). Tax benefits for buyers, such as 100% bonus depreciation and increased Section 179 expensing, provide favorable deductions against ordinary income. And tax benefits for sellers include continued lower tax rates for companies and individuals, certainty with estate tax exemptions for the next several years, and the expansion of Qualified Opportunity Zones to defer or eliminate some capital gains.

As it relates to PEO valuations, UHY predicts multiples will remain elevated.

With the significant competition for PEO acquisitions today, the risk is likely to the upside for PEO M&A valuations. Getting creative around acquisition strategy, running a proactive buy-side search process, or looking at ancillary service offerings for acquisition targets is probably the right strategy for PEOs with aggressive growth mandates, but who are otherwise more conservative from a valuation standpoint.