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New report reaffirms consolidation trend in IT staffing

IT Staffing Report

New report reaffirms consolidation trend in IT staffing

Brian Wallins
| November 30, 2020
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Low barriers to entry have historically led to a highly fragmented staffing industry across most geographies and segments. In the US alone, there are upwards of 19,000 staffing firms. For decades, the US IT staffing sector has served as one of the most prominent examples of market fragmentation among the larger staffing markets.

However, as 2020 has taught us, long-held patterns and accepted norms are not impervious to change. This appears to be the case with US IT staffing, where there are now compelling indications of a consolidation trend taking shape. First, we look to SIA’s recently published Largest IT Staffing Firms in the US: 2020 Update report. The chart below displays the combined US market shares of the largest IT staffing firms. Nearly one-third of the sector was derived from the five largest firms in 2019 and the largest 15 firms accounted for about half. A long tail comprising more than 2,000 staffing firms account for the other half the market.

The two largest US IT staffing firms, Allegis Group (13%) and ASGN (7%), each ticked up a point in market share in 2019 and, along with Insight Global (6%), each has played a key role in expanding the combined share of the largest five firms in recent years. Perhaps even more telling, the share of the 15 largest firms has increased by three points over just the past two years.

Combined market share of the five largest and 15 largest US IT staffing firms

Click on chart to enlarge

chart 1

Source: SIA

Another sign pointing toward market consolidation is heightened merger and acquisition activity. Findings from SIA’s Merger & Acquisition Trends: North America 2020 Update indicate IT staffing was the most active staffing segment for North America in 2019 and, as shown in the chart below, has been on an uptrend in recent years.

IT staffing acquisitions by year, North America

chart 2

Source: SIA

Even with disruption from the pandemic, IT staffing deals in North America this year are on pace to at least eclipse 2017 levels. Corporate Members have access to SIA’s Staffing and Workforce Solutions Mergers & Acquisitions interactive tool which contains details of more than 1,600 transactions and is updated regularly. More qualitatively, M&A advisors we speak with describe a current environment of intensified interest following a period of pause and disruption observed earlier during the pandemic.

Recessions, of course, can serve as yet another force of consolidation as some firms are unable to withstand the effects of an unforgiving economic downturn. Although IT has outperformed most staffing segments, aspects of the current recession have been particularly challenging, due to the sudden shock of the pandemic and its asymmetric effects. For example, firms with high customer concentration, industry concentration in areas hit most by lockdowns, those focused on the most economically affected geographic regions, and those that serve smaller clients have been generally most exposed.

For more in-depth analysis of consolidation trends in the IT staffing market Corporate Members can refer to the M&A section of SIA’s IT Staffing Growth Assessment: 2020 Update starting on page 60.

We wish our readers a happy and healthy new year!