Steven Nigro Featured in PEO Insider - Ask The Experts: M&A Edition

STEVEN H. NIGRO 
Managing Director  TAG Financial Institutions Group, LLC  New York, NY 

How would you characterize the current state of the PEO M&A market?   

The demand for quality PEOs remains strong and fundamental valuations remain stable, even with the rise in interest rates and related rise in buyers cost of capital. There is a shift to programmatically acquiring and integrating smaller PEOs as larger platforms are fewer and far between.
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We’ve noted that processes are taking a little longer as the 2021 frenzy subsides, but when comparing 2022 to the three years pre-pandemic, 2022 is stable to strong. Buyers are also becoming more diligent about assessing a seller’s valuation base as advisors are being more creative and aggressive in pro forma adjustments that increase that base.
      
Do you anticipate the market changing in 2023?  

I am cautiously optimistic that the buyside demand for PEOs will be strong through 2023.  For a longer-term perspective, I would be looking at the state of the economy at year-end, but here too I am optimistic that downside economic fears will not be severe.    

What do you want someone considering selling in 2023 to know right now?
    
My advice is consistent with that of a consideration to sell in any year, and that is to prepare well in advance of a sales process. Gather and organize the information and analyses that are expected by buyers. I am a huge proponent of engaging in a sell-side quality of earnings review. The emphasis on “multiples” is misplaced; the earnings base is far more impactful on enterprise valuation than advertised multiples.         

What would you want someone considering buying in 2023 to know right now?   

There are some hidden gems in smaller platforms that operate efficiently and are poised for growth. My observation of the PEO marketplace is that there is a narrower “expertise gap” between small platforms and larger ones than in other industries. Stated another way, there is real talent in smaller platforms that can ride the growth in growth strategies.   

What is the biggest challenge in the PEO M&A market right now?
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Supply, supply, supply.  

Full Article Link: www.napeo.org/peo-resources/publications-products/peo-insider/issue/december-2022-january-2023/ask-the-experts-m-a-edition