Topic: FINANCE & OPERATIONS

As the needs of clients evolve and change over time, it is important for PEOs to offer solutions that meet those needs. Sounds simple, right? We have all seen clients that initially onboarded with 10 employees that now have 200 employees and just hired a new CFO and HR director. Their needs have obviously changed.

The new year is a time to reflect on the past, plan for the upcoming year, and set goals and determine how to achieve them. At this time, all PEO departments should have processes to address these initiatives. Financially, among other things, budgets will be created, forecasts reworked, and tax rates reviewed and updated. The sales team will be assessing its pipeline, addressing what strategies did or did not work in the past year, and evaluating potential selling channels. Marketing might be updating social media accounts and finding new ways to create a buzz. But what areas should PEOs address operationally? The choices are limitless, but there are a few key operational areas that should be at the forefront for annual assessment.

Buying another PEO is an expensive and time-consuming proposition. It can also be disruptive to both the buyer and the seller, and to their employees and clients. It’s imperative that both sides do their due diligence, make sure there is a fit beyond the economics of the deal, and that the post transaction integration is completed with minimal hiccups.

The past 18 months have been interesting for the world, the United States, and the PEO industry. Almost everyone has felt the results of the COVID pandemic both personally and professionally. We hope we have felt and seen the worst of it and we can return to some level of normal shortly.  It should be no surprise, then, that the PEO industry, as well as mergers and acquisitions (M&A) and consolidation, have also been through a significant amount of change. In this article, we will explore some of the recent trends in acquisitions and the current state of affairs, and look forward at what we might see happening in the next two to three years. 

The M&A landscape in the PEO industry has been in a state of consolidation for more than 10 years. The COVID pandemic put a temporary halt on many transactions in early- to mid-2020. In Q3 of 2020, deal flow began to rebound, and as of 2021, many deal multiples appear to be at or above pre-2020 levels. The market is very active with a combination of industry veterans and new entrants. 

Investment bankers sell companies by running a “sales process.” This process includes becoming knowledgeable about a company’s business, finances, and operations followed by analyzing that information, preparing marketing information, evaluating and contacting the buyer market, reviewing and negotiating offers, conducting due diligence, and negotiating the transaction documents. And then the transaction closes.