Strong tailwinds in the human capital management (HCM) sector stand to benefit the executive recruiting industry and will drive growth and merger activity moving forward. Cody Crook, managing director of Hunt Scanlon Ventures, takes a closer look at the overall market and examines how diversification and faster paced M&A will combine to create lift in shareholder value.
Hunt Scanlon Media has released its annual productivity report of leading executive recruiters. In the U.S. and globally, billions of dollars poured into the high-end recruiting sector in 2023, but at a slower rate than in previous years.
“Executive recruiters pulled through a challenging year,” said Cody Crook, managing director Hunt Scanlon Ventures. Market turbulence and a soft economy impacted most firms, he said, with the sector declining 12.2 percent. “Hardest hit were recruiters serving the tech stack, VC and high growth companies,” he noted. Nevertheless, the Top 50 generated $6 billion in fees last year, reported Hunt Scanlon.
According to data analysis conducted by Hunt Scanlon – the firm’s 35th annual report – 70 percent of U.S. recruiting firms on its Top 50 ranking reported negative growth.
Related: Hunt Scanlon Top 50 Recruiter Ranking
But there were exceptions: No. 22 Modern Executive Solutions earned the distinction as the fastest growing search firm of 2023, rising 40 percent. No. 7 ZRG Partners, which moved up two spots on the rankings, was up 31 percent driven by programmatic M&A, giving it the distinction as the fastest growing search firm among the Top 20. Other notable gains were recorded by Academic Search, which had a 32 percent gain in revenues, Bay Street Advisors, which posted a 31.4 percent revenue increase, and Crist | Kolder Associates, which had a 16.4 percent gain.
More Turning to M&A
Strong tailwinds in the human capital management (HCM) sector stand to benefit the search industry and will drive growth and M&A activity moving forward, concluded the Hunt Scanlon analysis. “But search remains a highly cyclical and fragmented market,” said Mr. Crook, and for that reason, “M&A will continue to be a crucial lever for industry leaders seeking sustained levels of outperformance over the next decade,” he noted.
“M&A will continue to be a crucial lever for industry leaders seeking sustained levels of outperformance over the next decade.”
Powering the consolidation trend are the acquisition targets themselves. Hunt Scanlon said in a recent poll it conducted that 51 percent of search firms are planning to explore M&A solutions over the next 24 months. “That means more consolidation which we believe will benefit clients in the long run,” said Mr. Crook.
An equally important lever tied to M&A is diversification, said Mr. Crook. “Our firm is being asked more and more to assist PE firms and strategic buyers in acquiring new HCM platform verticals. So we are seeing a big uptick in activity around a number of HCM solutions, including interim and on-demand talent, leadership assessment, executive coaching, leadership consulting and culture,” he said. These offerings, with more stable and recurring revenue streams, will give the recruiting industry more resiliency to macroeconomic headwinds, he noted.
Diversification
One firm that has deliberately focused its attention on this strategy is Korn Ferry, the industry’s behemoth organizational consulting firm. Korn Ferry has expanded in recent years to go far beyond its roots in hiring people for its massive client base. The firm now advises on how to reward and motivate the workforce it recruits, while developing professional level talent as they navigate and advance their careers.
Its diversification strategy has paid big dividends. Korn Ferry raked in $1.78 billion in fees across its Americas region last year, and another $1.02 billion overseas. As a group, the world’s five largest providers, colloquially known as the SHREK firms, took in $6.7 billion in fees in 2023.
Related: Hunt Scanlon Big 5 Global Recruiter Ranking
Last year, Korn Ferry strengthened its capabilities in the interim and transition management business with its acquisition of Patina Solutions Group. It also acquired Salo LLC, a provider of finance, accounting, and HR interim talent. This comes on the heels of Heidrick & Struggles’ blockbuster move into the interim and on-demand talent space in 2021 with its acquisition of Business Talent Group.
Russell Reynolds Associates, which catapulted two places on Hunt Scanlon’s Big 5 rankings to reach No. 2, has also turned its attention to M&A, using this strategy to reinforce its capabilities. Last year, in fact, marked an M&A inflection point of sorts for the organization. It acquired coaching, leadership integration and team development firms Nvolv in June and Kilberry in August, followed by Savage Partners in November, a particularly noteworthy acquisition which deepened the firm’s solutions for growth-oriented technology companies. Hunt Scanlon Ventures acted as strategic advisor to Savage Partners.
“The executive search industry is poised for growth by leveraging strong momentum in the HCM market.”
“Turning to aligned talent offerings has not been relegated to just the biggest providers,” said Mr. Crook. “ZRG Partners clocked in as the fastest growing search firm on our Top 20 rankings,” noted Mr. Crook, and for good reason: programmatic M&A.
“When we started working with ZRG the firm was singularly focused on executive search and had revenues of less than $10 million. Today, CEO Larry Hartmann has built up four distinct business lines – executive search, interim, leadership & culture consulting, and RPO,” said Mr. Crook, all offered globally.
“We’ve diversified our offerings because we want to say yes to more clients when they have a need,” said Mr. Hartmann. Today, the PE-backed global talent advisory firm employs hundreds with $230 million in worldwide revenue, according to Hunt Scanlon.
Notable acquisitions along its diversification route include culture advisory firm Walking the Talk and interim executive solutions firm The Registry, which has the largest footing in the higher education interim space. Both acquisitions were brokered by Hunt Scanlon Ventures, said Mr. Crook.
Growth Platforms
“The coaching and assessments space has become an integral part of professional development in the corporate world and search firms have taken notice,” said Mr. Crook, as they seek to further enlarge their platform offerings. True, No. 6 on Hunt Scanlon’s rankings, recently acquired Bleeker, an executive coaching and assessment company. Hunt Scanlon advised two years ago on True’s first acquisition soon after the firm tapped LLR Partners for investment capital.
“Integrating the human capital management space underpins our mission statement,” said Mr. Crook. “Integrated human capital models in the future, we believe, will look very different than the ones we see today,” he said. “What we envision is a coordinated, highly interconnected human capital matrix that works in unison to provide a highly tiered, strategic approach to talent management. It has been a slow build to this point, but we believe integrated human capital solutions are the new growth platforms for search firms,” he added.
Mr. Crook said that Hunt Scanlon is forecasting a continued wave of consolidation in executive search and further diversification into aligned HCM markets that will fuel M&A activity – and, more importantly, help to accelerate growth – in 2024. He sees that activity extending well into 2029.
“The executive search industry is poised for growth by leveraging strong momentum in the HCM market,” he said. “In the years ahead, this will be driven by advancements in AI and technology – which will enhance service delivery and effectiveness – and power a growing need for strategic human capital advisory solutions. That’s why we could not be more bullish on this sector,” he said.
Article By
Cody Crook
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.
