By Brad Buttermore, Managing Partner,
Neal England, HCM Practice Leader

The National Association of Professional Employer Organizations’ (NAPEO) recent annual conference in Orlando reflected a thriving atmosphere for the growing Professional Employer Organization (PEO) industry.

Capital Alliance Corp., as a middle-market investment bank operating in the human capital management sector, is experiencing strong third quarter M&A activity with two recent closings in the PEO industry and expectations for continued closings in the fourth quarter.

The NAPEO meeting provided Capital Alliance Corp. (cadallas.com/) with an opportunity for several high-level meetings with buyers and sellers as interest in investing in the PEO space remains elevated.

NAPEO released a study during the conference bolstering the value proposition of PEOs. The study, by economists Laurie Bassi and Dan McMurrer of McBassi and Associates, shows revenue growth for small businesses that use a professional employer organization is double that of comparable non-PEO firms, and companies that use a PEO are also 16% more likely to report an increase in profitability.

Several important issues were discussed during the annual conference, including updates to the Small Business Efficiency Act (SBEA).

NAPEO staff and industry leaders continue to work with IRS on language and implementation issues concerning the SBEA; however, the first round of PEOs are already certified under the act. The PEO industry has been making appropriate adjustments to comply with the still-new legislation, which creates a voluntary certification program for PEOs within an IRS framework that gives certified PEOs a statutory right to collect and remit federal employment taxes, among other things.

Even with Hurricane Irma approaching, the Sept. 6-8 Orlando conference managed to attract nearly 900 attendees, up from about 500 last year, a clear indication that the industry is indeed competitive. We expect that M&A activity in the PEO space will continue to be strong throughout the remainder of 2017 and 2018.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human capital management.

Industry:

Human Capital Management

Business Services

PEO