The Takeaway: A Q&A With Thomas Bailey on Human Capital Management

Where have you seen M&A happening within the human capital management (HCM) sector?

From our perspective, HCM can mean a lot of different things. I would say we’re seeing different trends across all the different subverticals within HCM, from staffing to employer of record/payroll, to HR consulting, to direct sourcing, to workforce development. On the staffing side, the market has honed in on specific verticals. Anything that’s touching, say locum tenens or behavioral, or even education, continues to receive significant interest. The other areas, like IT, finance and accounting, and digital and creative, even clerical and light industrial, have seen challenges and resulted in a muted M&A environment. We’re starting to see more activity and more creative ways to unlock value and to create equity value in a muted environment. Our team has led several divestitures and orchestrated more complex mergers, so it’s not always the regular way.

Our team has been fortunate enough to see quite a bit of activity in 2025, whether it’s strong, A+ companies selling for big multiples or people trying to uniquely unlock value through mergers or divestitures. Also, there has been a pickup in activity in the HRO, talent marketplaces, and workforce development sectors. Outsourced HR functions are more in vogue, given the advent of AI and the way in which customers think about the use and development of contingent labor.

So, outsourced HR, career transition, leadership and talent development, and other fractional marketplace businesses are starting to become more in focus as changes in the labor markets create opportunities for people to move jobs, take part-time assignments, or reskill to a better-suited position. I feel there will be quite a bit of activity in the HRO landscape in 2025, with the staffing and recruitment M&A activity picking up in 2026.

You touched on a couple of sectors there. What sectors are super attractive right now within HCM?

I touched on locum tenens and education staffing, which are both seen as highly attractive areas at the moment, given the scarcity of quality assets. Professional employer organizations remains an area where there’s been significant investment and consolidation. I think we will continue to see these areas remain attractive in the rest of 2025 and in 2026.

I do think there is a lot of interest in investing in the HCM sector beyond hyper-specific areas. The knowledge base around more traditional areas, like healthcare staffing or IT staffing, has steadily increased. Furthermore, we’re starting to see new models evolve that blend into other types of delivery. For instance, in IT, we’ve seen a lot more hybrid delivery and development combining both SOW and time and materials to create a newer, competitive sector. In 2026, I think we’ll see a lot more activity as investors continue to execute on buy-and-build and consolidation strategies. A more normal growth trajectory will drive significant M&A volume.

Regarding the increased activity in HCM, do you see this trend being fueled more by private equity investment or by strategic acquirers looking to expand their capabilities?

Private equity still remains very active and interested in the HCM sector, given the current market dynamics, free cash flow characteristics, and the ability to buy-and-build with scale benefits and multiple accretion. The HCM market, broadly defined, is a fragmented industry, so there are quite a few businesses you can tack onto a platform and add delivery capabilities, service lines, and geographies to diversify. The M&A story for multiple platforms has been a tremendous investment case for many investors, so I think we’ll continue to see that be a dominant theme in the sector. As previously mentioned, we’re starting to see new business and delivery models in HCM, whether it be employer services, office of the HRO, or other internal or external talent marketplaces. These new businesses are finding ways to utilize AI and technology to drive efficiency and production into HR and HCM functions. We expect technology to be a big part of the M&A strategy and story as HCM services businesses evolve into more tech-enabled hybrids.

As these companies adapt and grow, how do you see interest in the sector evolving—both in the back half of 2025 and as we look ahead to 2026?

The biggest topic for everybody is how AI is going to affect these businesses. Are they going to enhance sales and delivery, increase margins, increase their productivity, or fully replace their businesses? We believe a big evolution in HCM is around the corner. Not necessarily as a displacement tool or function, but really as a lever to create much more efficient companies. With the use of AI tools, we think companies will transform lower-margin work into far more efficient and profitable business from a sales and delivery perspective. AI will enable successful employees to be so much more productive from an administrative perspective, but also from a real production and efficiency perspective. Over the next few years, I think we’ll see that evolution take place across the HCM sectors we cover. AI will enable significant consolidation in the HCM sector, where the bigger guys are going to look to have economies of scale that some of the smaller guys just can’t take advantage of because they’re not investing in rapidly changing technology and are not able to offer and diversify service lines.

In 2026, we expect to see substantially more M&A volume, particularly in the staffing and talent acquisition sectors. 

So what’s The Takeaway?

Right now, there are companies that need to think strategically about how to realize equity value, whether it be through a strategic merger or other M&A strategies to build their core base. I feel like organic growth is going to come back in a real way, and pretty strongly in 2026 across most, if not all, of the HCM sectors. As the human touch and AI come together, companies are going to be able to grow more profitably through efficiencies. As private equity investors look to divest from longer dated holds, there really looks like there’s going to be significant runway in 2026 and 2027; therefore, it is important to start planning for that now. We feel like investors will come into the sector heavily in the next two years, particularly to build sizeable, scaled platforms, so planning now is imperative.

So whether it’s getting your company or management teams prepared, building out your C-Suite, implementing AI and technology to create more efficiency, or executing on an M&A playbook, now is the time to get yourself ready for an investment, take-private, or sale to a strategic buyer. If you do that now, you’ll really reap the benefits in 18 to 24 months when your company has grown and is continuing to grow, and you’re selling into more momentum than maybe you are today.