In the ever-evolving world of talent technology M&A, Deloitte Corporate Finance and TALiNT Partners, recently hosted a thought-provoking discussion to better understand the key drivers in the talent tech M&A space. With a mix of both familiar faces and newcomers of talent tech C-suite execs, it emphasised the importance of these gatherings in fostering a tight-knit community that thrives on insights into the talent tech industry.
The Talent Ecosystem: A complex landscape
TALiNT Partners plays a vital role in the talent insights business, spanning the entire talent ecosystem. Their approach engages with employers, staffing firms, outsourcing providers, and a multitude of talent technology companies. The goal is to offer keen insights into the ever-evolving market landscape, helping organisations refine their strategies to meet the ever-changing needs of their customers. Equally, the team at Deloitte with their deep expertise and experience of numerous deals across both the staffing and technology sectors are uniquely placed to offer insight into the opportunities and challenges of value creation.
Challenges in Talent Tech
The conversation delved into the key challenges faced by organisations and recruiters. These challenges include workforce planning, internal mobility, compliance, employer branding, and the evolving landscape of hybrid work. Diversity and inclusion, social media, and analytics were also highlighted, along with the growing role of AI in recruitment.
The Shift in DE&I
Morgan Lobb, CEO at Vercida, raised a key question about the shift in the importance of diversity and inclusion. While there’s been a noticeable shift in this area, it’s essential to consider whether it’s due to organisations reaching a certain level of proficiency or other challenges taking precedence.
While high interest rates and uncertain macroeconomic environment made deal making more challenging, the influx of Private Equity ‘dry powder’ for investments created tailwinds supporting M&A activity
The ongoing success of traditional recruitment
Speculation about the decline of traditional recruitment in the face of tech optimisation was addressed. The reality is that traditional recruitment continues to thrive, with a strong emphasis on skills over experience as organisations work to improve their workforce planning.
The critical role of compliance
Compliance, especially in the United States as well as the UK and Europe, has become a critical concern. Fear of labour categorisation errors leading to hefty penalties has led employers to actively review their employer brand and employee value propositions. Hybrid working models are still evolving with the market still finding its equilibrium. The clash of the cultures debate continues across the world as organisations put increasing pressure on remote workers for a hybrid approach to work.
Technology’s role in recruitment
The conversation shifted to the technological aspects of recruitment, focusing on social media, analytics, labour market intelligence, and the integration of AI. There’s optimism about the industry’s adaptability and its ability to embrace various components of AI, even if not always in a strategic manner.
The changing landscape of M&A
Leonid Levin, Director at Deloitte, provided a comprehensive update on the M&A market, explaining the dynamics of the investment landscape. M&A activity had slowed down in 2023, but this was returning to historical pre-COVID levels. While high interest rates and uncertain macroeconomic environment made deal making more challenging, the influx of Private Equity ‘dry powder’ for investments created tailwinds supporting M&A activity. Valuations remained robust, but the growth premium was becoming less significant, with a stronger focus on profitability and fundamentals. p Technology or product differentiation and upselling opportunities were highlighted as factors improving valuations.
The growing influence of AI in M&A
Leonid further discussed the influence of AI in the market, emphasising the AI premium and its role in the valuation of tech businesses. He urged businesses to consider whether AI was an essential part of their value proposition or merely an enabling technology. While investors currently show enthusiasm over emerging AI technology, its lasting impact will depend on its integration into business fundamentals and its ability to enhance customer value.
Shifting client expectations in Talent Tech
The role of venture capitalists and financial investors in talent technology has transformed significantly. Historically they tended to position themselves as passive investors rather than “smart money,” actively engaging with portfolio companies. Today’s investors are far more likely to offer various support services such as recruitment, operational consultancy, and governance, and ensuring the executives align with financial growth goals.
The role of venture capitalists and financial investors in talent technology has transformed significantly
Different perspectives on investor engagement
Mark Stephens of Teci2 noted that early-stage technology companies often experience less intense VC involvement before series B funding. Instead of choosing the right CFO, VCs might influence the hiring decision. The level of involvement desired may depend on the founder’s team’s experience, as highly experienced teams may appreciate validation more than interactive guidance.
Ken Brotherston, CEO at TALiNT Partners, questioned whether founders really want investors deeply involved in operational decisions or if they seek strategic engagement that challenges their approach to the market. The level of involvement may vary based on the team’s experience.
The role of advisors
The discussion highlighted the importance of leaders having a network of advisors who can offer guidance, challenge assumptions, and provide valuable insights. These advisors understand the business but are unafraid to ask tough questions. Their honesty and support can be as crucial as financial partners, particularly during challenging times.
A well-balanced leadership team
The importance of leadership and having the right people around the leader cannot be overstated. Investors are increasingly focused on evaluating not only the product but also the leadership’s ability to navigate the dynamic business environment. Successful leaders must adapt, be agile, and build teams that can take their companies to the next level.
In the ever-changing landscape of talent tech M&A, it’s clear that the role of AI, shifting client expectations, and the importance of leadership and a well-balanced team are central to success. The adaptability and resilience of organisations in response to these changes will determine their place in the evolving landscape of the talent technology industry. As the market continues to transform, staying ahead of the curve and embracing innovation will be essential for organisations to thrive in this dynamic environment.