The Impact of Labor Shortages on M&A

The Labor Shortage Persists

The COVID-19 pandemic has impacted companies of all sizes, but small businesses have certainly been hit the hardest. First, there were total shutdowns, followed by financing problems due to slowed business, and now it is labor shortages that are the latest issue as the world works towards recovery. 

The slew of workers leaving the workforce altogether is fueling a growing labor shortage in what seems to be every industry. Demand is up, and supply is down. Businesses are facing concerns with not having enough people to get the job done—especially in sectors such as healthcare and technology. These spaces are seeing attrition rates of 3.6% and 4.5% higher, respectively, than last year. Research even shows that 36% of workers who quit their jobs did so without another job lined up.

And the labor shortage is an issue that is happening on a global scale, from the US to Canada to Europe. According to the US Census Bureau, many businesses struggle to retain and attract employees, and 49% of business owners say the labor shortage is affecting their business. And a Canadian study reported that 30% of Canadian business owners say the top motivating factor for pursuing an acquisition is gaining access to new talent. That number is up from 20% before the pandemic. Additionally, a recent Eurostat survey found that, in the third quarter of 2021, a worker shortage was hampering production at 83% of industrial companies in Hungary, 50% in Poland, and 44% in the Czech Republic.

How M&A is Being Affected

Skilled labor is critical to a company’s operating performance. And amid such a shortage, recruiting highly skilled labor through traditional routes can be especially slow and inefficient. This is leading to a trend known as “acquihiring,” which is the act of hiring skilled labor from other companies through mergers and acquisitions (M&A).

An increasingly important factor of M&A deals is accessing an immediately available workforce. Talent shortages serve as an impetus for businesses to acquire companies, even in other countries, in order to buy up their existing talent. During the height of the pandemic, acquiring talent as a reason to buy a business rose to 30% from 20%. The current labor shortage is expected to continue, motivating more business owners to acquire other businesses. 

The M&A wave is also opportunistic in nature, as companies are looking to pounce on vulnerable competitors at a bargain. The majority of global dealmakers expect M&A movement to increase in 2022.

Business owners are selling right now for a variety of reasons. Another current factor for M&A is that many entrepreneurs are getting older at a time when the economy is doing well, and interest rates are low. This makes for good circumstances to make an acquisition. Research shows that, of buyers planning to sell, 20% cite retirement as their main reason, and 38% cite burnout. It is expected that the number of transactions will grow to be well above pre-pandemic levels in 2022.

Many businesses have also turned to automation to address the labor shortages, which is also a driver for acquiring other businesses—to gain their more advanced technology. But this is only effective in certain areas, such as IT, network maintenance, and some healthcare. Because it can only be part of the solution, acquisitions to gain talent will continue to be a priority for companies facing labor shortages.

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