According to just-released market intelligence from PitchBook, global M&A dealmaking is slowly coming back after two consecutive years of declines. But a stronger recovery is being checked by flat PE dealmaking. Cody Crook, managing director of Hunt Scanlon Ventures, unpacks what it all means for human capital M&A activity.
M&A deal activity rose five to 10% year-over-year in Q1, despite falling short of Q4 2023 totals, according to new data released by PitchBook. Deal multiples have remained stable, meanwhile – “a sign that the valuation reset may be complete, and have room to move higher to catch up with elevated prices of public companies,” said the market research firm.
Global M&A had declined for two years straight heading into 2024. According to PitchBook, M&A has almost always bounced back from consecutive annual declines, and researchers at the company do not think this year will be any exception.
“The prior two episodes of 2007-2008 and 2001-2002 registered total peak-to-trough declines of approximately 60% to 70%, whereas the present decline has measured 34.4% from 2021’s peak,” said the firm’s latest report. PitchBook estimates that Q3 2023 was the trough in the recent cycle, and Q1 2024 provided some support to that outlook.
Dealmaking is Improving
“Dealmaking is improving,” said Cody Crook, managing director and head of investment services at Hunt Scanlon Ventures. “Our lens is focused on the human capital management (HCM) sector and that is where we have seen a significant uptick in M&A activity more or less since 2024 kicked off,” he noted.
“Our lens is focused on the human capital management (HCM) sector and that is where we have seen a significant uptick in M&A activity more or less since 2024 kicked off.”
Strong tailwinds across the HCM ecosystem are benefitting a number of adjacencies across the vertical, said Mr. Crook – from executive coaching and culture consulting to executive search, interim services, and AI-enabled talent solutions. “Each and every one of those niche solutions encircle and connect to one another and so we are seeing a big increase in strategic buyers looking to capitalize on some really unusual market dynamics playing out right now,” he said.
Among them: Sustained acquisitions. “Programmatic M&A is pushing M&A activity to new levels across the HCM space,” said Mr. Crook. “It is now seen as a crucial lever for sophisticated industry leaders seeking enduring levels of outperformance over the next decade,” he said.
‘We Haven’t Been Busier’
Powering the consolidation trend in one important HCM market segment – executive search – are the acquisition targets themselves. In a recent Hunt Scanlon poll, 51 percent of search firms said they are planning to explore M&A solutions over the next 24 months.
At the same time, PE firms and strategic buyers have been calling Mr. Crook seeking acquisition targets ranging in size from $2-5 million in EBITDA to one firm seeking investments in the $25 million-plus EBITDA range. One Hunt Scanlon client has retained the firm to roll-up as many as 10 targets.
“We haven’t been busier,” said Mr. Crook, who noted that Hunt Scanlon has 24 firms in its pipeline at various stages of the M&A process. “We will close a dozen deals this year and we are more than fully subscribed as we start to think about what lies ahead in 2025.”
“Programmatic M&A is pushing M&A activity to new levels across the HCM space. It is now seen as a crucial lever for sophisticated industry leaders seeking enduring levels of outperformance over the next decade.”
Deal Pipeline
Among its deal pipeline are recruiting firms in more than a dozen industry and functional specializations; several AI-enabled talent solutions providers; a culture assessment leader; several executive coaching platforms, and interim firms.
“Our buyer pool now includes a long list of large strategic acquirers and 10 PE investors seeking a toehold in HCM,” said Mr. Crook. “The sector, generally, is hot and these offerings, with more stable and recurring revenue streams, give acquirers more resiliency to macroeconomic headwinds. They recognize that,” said Mr. Crook.
Still, everyone is sensitive to a sharp drop in the economy, said Mr. Crook. But with that risk receding every month he said he believes an M&A recovery is underway for the broader markets.
Recent data from PitchBook seems to support that view. In the first quarter of 2024, North America’s M&A landscape held despite the persistently challenging dealmaking conditions, concluded PitchBook in its recent analysis. The total M&A value for Q1 totaled $464.1 billion, marking a robust increase of 9.7% year-over-year. Deal volume, another indicator of a healthy market, showed some light softness, according to PitchBook. The quarter recorded 4,204 deals, reflecting a decline of 2% year-over-year.
Looking ahead, the potential for lower rates later in 2024, contingent on moderating inflation data, instills optimism for a potential rebound in deal activity in the second half of the year, said the PitchBook report. Stay tuned.
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.
