Recruitment process outsourcing (RPO) streamlines the hiring process by removing administrative bloat and enabling scalability in times of growth. In a new report, Technavio unpacks how this will lead to 15.2% CAGR between now and 2027 when global RPO is set to hit $22 billion in market size.
Off-loading the recruitment process to an RPO provider adds business value by providing increased specialization through the recruitment process. According to Technavio, the value of this service is on full display when a business expands into a new product category, or a new region of the world. Where an in-house recruiter will have no specialization in these new markets, an RPO provider will. By bringing in an RPO provider companies unlock market specialization in their recruitment process from the moment they begin pursuing an expansion.
The specialization that RPO providers usher in increases the quality of every hire. During an expansion this can make or break the new pursuit. Simultaneously, when the market ebbs, as it is doing now, and certain industries are no longer hiring, companies aren’t stuck with the operational costs associated with an in-house recruiter. Such imbalances incur high costs for any company. Hence, to reduce the cost per hire, companies are actively engaging RPO firms.
Cody Crook, managing director at Hunt Scanlon Ventures, believes the space is set for explosive growth over the next three to five years. North America, he says, will be the primary beneficiary where, through 2027, 40 percent of the growth in the global market will take place. Let’s take a deep dive into RPO. If you’d prefer to listen to the discussion, you can do so here:
Cody, what’s so attractive about RPO providers for PE firms seeking a toe hold in the space?
From those I’ve spoken with it is the consistent revenue and imminent growth trajectory that are the primary draws to the RPO space. For many PE firms already operating in the recruitment space this is a natural extension of their more traditional staffing offerings. For a PE firm with a recruitment firm in their portfolio, adding an RPO arm is a clear win.
Search firms are also investing in the RPO space, right?
Yes, absolutely. This high growth sector isn’t only a nice bolt-on for PE investors. Executive search firms have also set up RPO shops with great success. Larry Hartmann at ZRG is a big proponent of RPO. He recently acquired a firm called Hub Recruiting. Larry told us that his rationale for the acquisition was completely client-driven – clients, he said, have asked for support for volume hiring in complex sales, engineering, and technical roles, but ZRG lacked that capability. Hub adds that competency in spades, enabling ZRG to support recruiting for project-based, volume hiring around the globe. And for senior roles. For ZRG, RPO is another core offering that aligns with their other platforms in executive search, interim solutions, leadership consulting, and culture transformation. Interestingly, Larry has synchronized his own build-out strategy around helping client companies with a myriad of talent needs. He is building a great business which we believe can be recession proof. When one solution dips, another will rise. Like he said, with every crisis comes opportunity.
He recently raised additional investment capital, is that correct?
Yes. ZRG took the approach late last year that this was an ideal time to raise additional capital to acquire and grow – and that it is oftentimes easier to grow and to add great people and businesses when the market is a little bit softer. So, in a pretty tough environment to raise capital, ZRG brought in five new institutional investors and raised the commitment over $90 million. Now Larry and his corporate development team can deploy that capital and show growth-through-acquisition and hiring. It is a wonderful strategy, and our Hunt Scanlon Ventures team is excited to be working alongside them on their investment journey. To date, we have helped ZRG acquire a sports & entertainment recruitment firm and a culture consultancy based in Europe.
So, what is Hub Recruiting’s approach?
Hub’s approach combines recruiters and sourcers, ongoing training and coaching, and integrated tools including data analytics – what we called Full Stack RPO. Their key focus areas include technology-driven companies that are building their technology, revenue, and corporate functions here in the U.S. and internationally.
What are RPO margins like? Is that a major draw for investors?
From what we’ve seen the margins aren’t as lively as other portions of the recruitment space, like executive search for instance. But the consistent revenue more than makes up for that. In fact, the strong cash flow is precisely why PE investors and search acquirers would add RPO to an executive search or staffing portfolio company. The high margins of executive search are a perfect pairing with the consistent revenues found in RPO.
How will RPO change the recruitment space?
Among many other factors, RPO will continue to enable the rise of the gig economy. In fact, RPO and the gig economy are somewhat symbiotic. To offer work in the gig economy requires access to a well-maintained cloud-based platform, and most companies will need some level of outsourcing to offer work in this way. As the gig economy grows and remote working becomes the modern workday habit, more companies will look to access employees through it. Simultaneously, as RPO providers grow there will be more and more companies enabling this growth. It’s an interesting trend we’re already seeing that I believe will continue due to changing approaches to how and where people work as well as the shifting demographics that are underway.
What excites you most about this space?
Personally, I’m super excited to see the effect that AI will play in this space. Very few companies have the capacity to run an in-house AI-driven recruitment process, but as these learning models improve year over year, they’re going to play an increased role in the recruitment process. This will be very good for RPO. The adoption of technologies like artificial intelligence is a big reason that most of the growth in RPO will take place in North America in the next three to five years. I feel like for RPO we are in the first inning of a nine-inning game. As new technologies become endogenous all over the world, we will likely see massive growth for RPO in the longer term.
Cody Crook is managing director and head of investment strategy at Hunt Scanlon Ventures - an M&A advisory firm that specializes in the human capital space. Cody is responsible for co-managing the firm's investment portfolio, which includes executive search, talent acquisition, private equity, and investment firms. Leading the investment team, he spearheads all fund transactions and maintains portfolio developments. He is also responsible for sourcing, managing and monitoring investments and working with external portfolio managers, analysts and investors on active and prospective transactions. Connect with Cody.