Market insight: The human resources and human capital management sector
The UK’s Human Resources (HR) and Human Capital Management (HCM) industry is undergoing a rapid transformation, spurred by digitisation, regulatory shifts and evolving workforce expectations. This dynamic sector includes a broad range of providers, from outsourced HR and compliance specialists to workforce analytics and talent management platforms.
Organisations are increasingly outsourcing HR functions to enhance efficiency, reduce costs and ensure legal compliance. This ongoing transition has elevated the sector’s attractiveness to investors and strategic buyers alike, particularly those seeking scalable, tech-driven and recurring revenue business models.
Current landscape
M&A activity within the HR sector has erupted in recent years. Following the pandemic, 2022 marked a record high with 474 global deals, far surpassing the 2016-2020 average of 266 deals annually. This momentum continued in 2024, with $7.2bn in equity investment in HR tech through Q3 alone, with Europe accounting for 37% of all sector M&A transactions during that period.
In the UK, deal volume within the recruitment sub-sector remained robust despite post-pandemic normalisation. After peaking in 2022, transaction volumes steadied with 59 UK recruitment deals in 2023, rising to 63 deals in 2024, highlighting the market’s resilience.
Investors, particularly private equity firms, continue to see HR and staffing businesses as high-value targets due to their scalability, embedded customer relationships and digital transformation potential.
Key market trends
Adoption of AI and automation: Perhaps one of the most significant trends is the embracing of AI and advance analytics into HR tools. Beyond the implementation of AI-driven features, acquirers are seeking companies that are truly innovative with particular interest being generated for businesses that utilise AI to improve employee engagement, workforce analytics and hiring decisions.
Consolidation into integrated suites: Employers are moving away from disjointed point solutions and towards unified, end-to-end platforms. This has led to significant M&A activity, as larger groups acquire specialist boutique HR tech firms to build comprehensive service suites.
Data-driven HR and people analytics: With rising interest in employee insights, predictive performance tools and retention analytics, HR tech firms offering strong data capabilities are being snapped up. These acquisitions not only enhance service offerings but also provide proprietary data crucial for AI training and competitive differentiation.
Emphasis on DEI and compliance: As organisations truly embrace diversity, equity and inclusion (DEI) and regulatory compliance, M&A is being driven by the need to acquire solutions that help employers meet these evolving expectations.
Key drivers and motivations for acquirers
Expanding current product offerings: Strategic acquirers are seeking businesses that fill functional gaps in their existing HR solutions sets. High levels of interest are being generated for those offering tech-driven services such as payroll, performance tracking and employee engagement.
Geographic and market reach: Cross-border interest is growing, with international buyers, particularly US-based firms, actively acquiring UK providers to establish a foothold in the European market.
Acquiring innovation (tech or talent): To stay ahead of rapidly evolving HR tech trends, buyers are turning to acquisitions as a quicker route to innovation, acquiring both cutting-edge technologies and the skilled workforce behind them.
Responding to client needs for one-stop solutions: A key theme is the pursuit of all-in-one platforms. Clients increasingly prefer comprehensive service offerings, prompting acquirers to broaden capabilities through strategic M&A.
EBITDA multiple ranges
M&A in the HR & HCM sector continues to command strong valuations, with EBITDA multiples typically ranging from 5x to 15x in the UK. From 2021 through to mid-2024, the average sector multiple has remained steady at 8.2x.
Factors driving higher multiples
Recurring revenue: SaaS-based and subscription-driven businesses attract premium pricing.
High customer retention and engagement: Companies with loyal client bases and strong net revenue retention are particularly appealing.
Strategic value and innovation: Innovative technology or service capabilities that align with acquirers’ growth strategies can significantly elevate deal value.
Which factors drive growth in the UK HR and HCM industry?
Digital transformation and cloud migration: The shift to cloud-based HR platforms is accelerating, allowing mid-market companies to access sophisticated HR solutions that were once reserved for enterprise players.
Regulatory and compliance needs: With constant changes in compliance and reporting requirements such as GDPR, DEI mandates and tax reform, organisations are investing in robust HR systems to mitigate legal risks.
Technological innovation and AI: AI is revolutionising the HR functions, from predictive hiring to automated compliance checks, driving demand for platforms that integrate these capabilities.
Strategic interest from private equity and investment buyers
Private equity (PE) has played a pivotal role in consolidating the sector. Key strategies include:
Buy-and-build platform strategies: PE firms acquire a cornerstone business and scale it through add-on acquisitions. In early 2024, 30% of HR transactions were add-ons by PE-backed companies.
Steady cashflow: Subscription income and long-term client contracts create predictable revenue streams that are ideal for PE models.
Exit-ready growth: PE firms invest in operational improvements and tech upgrades to achieve higher valuations upon exit.
What types of businesses are strategic acquirers pursuing in this sector?
- Employee engagement and experience platforms
- Learning and development platforms
- Payroll and HRIS providers
- Employee Self-Service (ESS) solutions, where demand for tech-enabled self-service platforms is high.
Which companies have KBS sold in this sector?
A prominent provider of workplace health surveillance and risk mitigation services, OHS was sold to Latus Group. The acquisition strengthened Latus’ medical expertise and created additional capacity for the combined customer base while increasing geographical reach.
The Compliance Group sold to Black Mountain HR
The Basingstoke-based provider of outsourced employer services was sold to Black Mountain HR in a cross-border deal connecting UK expertise with Asia-Pacific markets.
FPR Group sold to Kingdom Group
Brighton-based FPR was sold to Kingdom Group in a strategic deal expanding the acquirer’s UK presence and strengthening its market offering.
Vivup Management Buyout backed by Omni Partners
The provider of employee wellbeing and health benefits was the subject of an MBO backed by PE firm Omni Partners, resulting in the enhancement of employee wellbeing platforms.