How Workforce Trends Impact SMB Acquisitions

Workforce trends are reshaping SMB acquisitions. Buyers must now evaluate how businesses handle hiring, retention, and workforce dynamics to ensure post-acquisition success. Key insights include:

• Skills-Based Hiring: 81% of employers now prioritize skills over degrees, reducing hiring errors by 90% and improving employee performance by 94%.
• Remote Work: Flexible work setups expand talent pools and reduce costs but require strong tech infrastructure.
• Gig Economy: Nearly half of the U.S. workforce will engage in gig work by 2025, offering cost-effective access to specialized skills.
• U.S. Workforce Stats: The unemployment rate rose to 4.1% in 2024, with 45% of workers holding a bachelor’s degree and healthcare employing 20% of the workforce.

Bottom Line: Workforce practices directly influence SMB valuations and operational health. Buyers should assess talent retention, hiring strategies, and workforce data to avoid post-acquisition risks and ensure growth.

HR Questions in Small Business M&A (pre-and-post-acquisition)

Major Workforce Trends Impacting SMB Acquisitions

Three significant workforce trends are reshaping how small and medium-sized businesses (SMBs) operate and influencing their valuation during acquisitions. These trends highlight which businesses are thriving and which are falling behind.

Skills-Based Hiring Over Degree Requirements

The shift from requiring traditional degrees to focusing on skills is transforming the way SMBs build their teams. A staggering 81% of employers are now adopting skills-based hiring practices. This approach prioritizes candidates' abilities over formal credentials, leading to a 90% reduction in hiring errors and a 94% improvement in employee performance. In fact, skills-based hiring is five times more accurate in predicting future performance than relying on educational qualifications.

Currently, only 17.8% of U.S. job postings mandate a four-year degree, which significantly widens the pool of potential candidates. This is particularly valuable since employees without degrees often stay in their roles 34% longer than those with degrees.

"Skills-based hiring aids in mitigating hiring biases. Once hired, Black women can further progress and attain leadership positions, paving the way to recruit the next generation of diverse talent", says Lauren Wesley Wilson, a DEI expert.

However, challenges persist. Brooke Weddle, a partner at McKinsey, points out:

"One of the things that I've seen in the skills-based hiring world is that people are hiring for the most critical skill of a given role or the hardest-to-find skill of a given role. They're not hiring for all of the skills in a given role".

When evaluating SMBs for potential acquisition, consider whether they’ve updated job descriptions to focus on competencies, implemented skills assessments, and invested in upskilling programs. As hiring practices evolve, remote work is further changing how SMBs attract and manage talent.

Growth of Remote and Flexible Work Options

Remote and flexible work arrangements have shifted from being optional perks to essential features for modern SMBs. These setups not only expand the talent pool beyond local boundaries but also reduce costs associated with physical office spaces. They’ve also proven to enhance employee attraction and retention.

For SMBs without dedicated IT staff - 40% lack any - strong tech infrastructure is a game changer. It accelerates digitization by three to four years, helping businesses adapt to the demands of remote work. This readiness is a key differentiator for SMBs aiming to stay competitive.

Take MRS BPO, for example. This accounts receivable management firm transitioned to a 90% remote workforce in just 21 days using AWS. Similarly, Sixth Force Solutions leveraged cloud infrastructure to grow its customer base from zero to over 60 in under a year, achieving a 150% revenue increase in 18 months - all thanks to the scalability and flexibility of remote work technologies.

Remote work also bolsters operational resilience. Companies with established remote systems are better equipped to handle disruptions like severe weather, cyberattacks, or public health crises. When assessing SMBs, it’s worth examining their remote work policies, tech capabilities, and how employees feel about flexible arrangements. Beyond remote work, the growing reliance on gig workers is another trend shaping the workforce landscape.

Increased Use of Gig Workers and Freelancers

The gig economy is becoming a cornerstone of how SMBs operate, complementing both skills-based hiring and remote work. By 2025, nearly half of the U.S. workforce is expected to participate in gig work, significantly influencing business valuations and operational strategies.

The numbers are striking. In 2019, the global gig economy generated $204 billion in gross volume, with an annual growth rate of 17% projected through 2023. Currently, 25–30% of the U.S. workforce is contingent, and over 80% of large corporations plan to expand their use of gig workers.

For SMBs, gig workers offer a cost-effective way to access specialized skills on a project basis without the long-term commitments and benefits associated with full-time employees. The pandemic accelerated this trend, with a 24% increase in gig workers during the summer of 2020 compared to previous years. Younger firms, in particular, are more inclined to rely on gig workers.

"In the networked age, scale and agility – the big advantages of the new models of work – can go hand in hand. Small companies can be multinational and global from day one", explains Reid Hoffman, Co-founder of LinkedIn.

To effectively manage gig workers, SMBs need clear communication channels, standardized contracts, and robust project management systems. When evaluating SMBs that rely on gig workers, pay attention to how they manage freelance talent and their ability to scale quickly.

Understanding these workforce trends can provide valuable insights for identifying SMBs that are well-positioned for growth and adaptability in a rapidly changing business environment.

How to Analyze Workforce Trends During Deal Sourcing

Understanding workforce trends is essential for uncovering potential risks and opportunities during deal sourcing. By examining both local talent markets and internal workforce dynamics, you can better assess a company's ability to sustain and grow its operations post-acquisition.

Reviewing Local Talent Availability

A thorough understanding of the local talent pool can help you evaluate whether a small or medium-sized business (SMB) has the resources to thrive after acquisition. Start by looking at skill distributions, hiring trends, and employment norms specific to the target market. These factors can vary significantly between regions and influence everything from salary expectations to hiring timelines. For instance, differences in the number of tech graduates or compensation levels across regions can directly impact growth plans.

Cross-border employment opportunities can also play a role in addressing talent shortages. Companies can tap into global talent pools to fill gaps while mitigating regional brain drain. However, the feasibility of remote work depends heavily on access to reliable internet and strong technology infrastructure, which can differ dramatically by location. Once you've reviewed the local talent landscape, dive into the target company’s internal workforce data to get a clearer picture of its operational health.

Using Workforce Data to Check Business Health

Internal workforce data provides valuable insights into a company's stability and readiness for integration. By analyzing staffing levels across roles, seniority, and locations, you can identify potential challenges such as high turnover rates or underlying cultural conflicts that could hinder post-acquisition success.

For example, a survey by the Business Group on Health found that 67% of employers see a data-driven approach as vital, with 93% considering it key for healthcare strategies and 81% linking it to well-being decisions. A case in point: when Hellman & Friedman and Bain Capital acquired Athenahealth for $17 billion in 2022, workforce data revealed a strategic reduction of nearly 10% in staff during 2017–2018 to improve cost efficiencies. This was followed by a significant expansion in the Asia-Pacific region, where the workforce grew from 13% in 2017 to 25% at the time of acquisition.

Safety records are another critical indicator of business health. Reviewing OSHA logs, written safety programs, and Job Hazard Analysis documents can confirm whether a company complies with safety standards. Additionally, benchmarking the company’s metrics against industry peers can help identify gaps or areas for improvement.

Tools for Workforce Data Collection

Modern tools and platforms make it easier to gather and analyze workforce data. Deal sourcing platforms like Kumo aggregate business listings and use AI-powered analytics to identify SMBs with strong workforce practices in regions with favorable talent availability. These tools often include customizable search filters to refine your analysis.

Specialized software can further enhance your workforce evaluation. For example, ChartHop offers visual organizational charts for headcount planning, while Visier provides predictive analytics powered by AI. Comprehensive solutions like SAP SuccessFactors Human Capital Management integrate workforce analytics, employee lifecycle management, and headcount planning into a single platform.

Government resources also offer valuable insights. The U.S. Census Bureau provides tools like Census Business Builder, Economic Database Search, and OnTheMap to analyze workforce trends. Meanwhile, the U.S. Department of the Interior’s Small Business Intelligence Tool can help you understand purchasing and spending patterns.

When choosing workforce analysis tools, prioritize features like automated reporting, scenario planning, turnover tracking, and labor demand forecasting. It's also important to consider your specific challenges and budget, ensuring the platform offers adequate training and support.

"Startups must focus on upskilling and reskilling talent in AI, cloud computing, and cybersecurity to remain competitive. The next wave of innovation will be led by those who invest in knowledge, not just infrastructure."

To make the most of workforce data, combine quantitative metrics with qualitative insights. Use localized market data and real-time cost-of-living adjustments to minimize workforce attrition in high-inflation environments. Additionally, conduct legal reviews to ensure compliance with regional regulations when deploying remote teams. By leveraging these tools and insights, you can align workforce strategies with your acquisition goals effectively.

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Benefits and Drawbacks of Workforce-Focused SMB Acquisitions

Focusing on the workforce during acquisitions can bring both opportunities and challenges. By weighing these trade-offs, businesses can make smarter decisions about which small and medium-sized businesses (SMBs) align with their long-term objectives.

Benefits of Workforce-Focused Acquisitions

Companies that prioritize workforce strategies often see tangible results. For instance, businesses that focus on workforce optimization report growth rates 7–9% higher and better employee retention compared to those that don't.

One of the biggest advantages is access to specialized talent. Pavel Bahu, Global HR head at Trevolution Group, highlights this point:

"Hiring across regions and countries allows businesses to tap into a significantly larger talent pool, allowing them to attract the most suitable and skilled employees."

Flexibility is another major plus. Hybrid work schedules, for example, have been shown to boost productivity, with 78% of companies reporting increased output. Additionally, bringing together a diverse, globally sourced workforce can spark fresh ideas and innovation. Kraig Kleeman, founder and CEO of The New Workforce, explains:

"People from different cultures often interact in ways you might not expect, and more creative solutions emerge. Some of the most innovative ideas I've seen come from globally diverse teams working together."

While these benefits are impressive, they come with challenges that require careful planning.

Challenges of Workforce-Focused Acquisitions

Despite the advantages, workforce-focused acquisitions aren't without risks. Cultural misalignment is one of the biggest hurdles, with 70% of deals failing to achieve expected synergies due to people-related issues. Even when companies seem like a great fit on paper, differences in work culture, management styles, and employee expectations can complicate integration.

Employee stress is another concern. After a deal, 70% of employees and 74% of leaders report feeling stressed, which often leads to lower productivity and higher turnover during critical periods.

Integration itself can be a daunting task. While 95% of executives agree that cultural fit is essential for successful integration, 25% point to a lack of cultural cohesion as the main reason for failure. Balancing workforce retention with necessary operational changes requires thoughtful planning and strong leadership.

Cost is another factor to consider. Retaining top talent often means offering competitive compensation, enhanced benefits, or significant investments in training and development - all of which can eat into projected savings.

Benefits vs. Challenges Comparison

Consideration	Benefits	Challenges
Talent	Access to specialized skills, larger talent pool	Competition for talent, potential skill shortages in certain regions
Workforce Flexibility	Expanded hours, remote work options	Managing time zone differences, maintaining company culture
Employee Retention	Higher engagement through support and development	Uncertainty during transitions, risk of losing key talent
Compensation	Potential cost efficiencies based on location	Creating fair and competitive pay structures, navigating complex labor laws
Cultural Integration	Boosted innovation through diverse perspectives	Cultural clashes, difficulty maintaining a unified company culture

Success in workforce-focused acquisitions hinges on a detailed pre-acquisition evaluation of cultural compatibility and a clear plan to address integration challenges. Companies that navigate these complexities effectively are more likely to achieve higher synergy realization rates - over 83% - compared to those that struggle, where fewer than half meet their synergy goals.

Conclusion: Aligning SMB Acquisitions with Workforce Trends

The connection between workforce trends and SMB acquisitions has become more important than ever. As Erika Oliver, a workforce planning expert, explains:

"Strategic alignment represents the critical intersection where human capital strategy meets business objectives - a dynamic process that transforms organizational aspirations into tangible workforce decisions".

For successful acquirers, workforce considerations are not just an afterthought - they’re essential to achieving deal success. With rapid technological changes, evolving workforce demographics, and shifting business models creating new challenges in managing human capital, ignoring these trends can lead to significant risks.

The numbers back this up: research shows that happy employees are up to 12% more productive, and 68% of consumers now consider sustainability practices when making purchasing decisions. These factors make workforce-focused acquisitions a smart and strategic move for SMB buyers.

Key Points for SMB Buyers

To stay ahead, savvy SMB buyers integrate workforce analysis into every step of the acquisition process. This means aligning their workforce plans with their mission, vision, and long-term goals, while using data-driven strategies to turn objectives into actionable workforce decisions. The most successful buyers assess workforce demographics, skills, engagement levels, performance metrics, and turnover rates comprehensively, ensuring they address any challenges that could disrupt workforce stability after the deal closes.

HR due diligence plays a key role in this process. By involving HR early on, buyers can identify risks, unlock opportunities, and smooth out post-merger transitions. This involves gathering key HR documents - like organizational charts, employee contracts, and policy handbooks - and quantifying the financial impact of workforce-related liabilities. Adding technology to the mix only strengthens these evaluations.

Technology can also enhance the employee experience by supporting remote and hybrid work models while aligning benefits with corporate goals and social responsibility.

How Tools Support Workforce Analysis

Once foundational strategies are in place, advanced tools can refine acquisition decisions. Deal sourcing platforms, for example, have transformed how workforce trends are analyzed. Data-driven decision-making has been shown to improve productivity by 63%. Platforms like Kumo use AI-powered analytics to evaluate workforce factors faster and more accurately than manual methods.

AI tools, such as predictive analytics and automated HR dashboards, empower buyers to anticipate future workforce needs, optimize staffing, and resolve potential issues quickly. These insights help companies align their decisions with current market conditions, which is especially valuable for ensuring workforce stability during acquisitions.

Mary Zhang, head of marketing and finance at Dgtl Infra, highlighted the benefits of this approach: shifting from instinct-based decisions to data-backed strategies improved campaign effectiveness by 40%. This underscores the power of combining data insights with industry expertise.

For companies aiming to secure federal contracts, workforce analytics also provide valuable support for meeting new certification requirements.

FAQs

What role does skills-based hiring play in the long-term success of SMB acquisitions?

Focusing on skills-based hiring can transform the long-term success of small and medium business (SMB) acquisitions. By prioritizing candidates' abilities over traditional credentials, businesses can assemble teams that are better prepared to navigate industry shifts, embrace new ideas, and fuel growth.

This approach also helps lower employee turnover by matching roles to individuals' strengths and career aspirations. A workforce that feels aligned and motivated not only handles post-acquisition transitions more effectively but also creates a solid base for ongoing success.

What challenges do SMBs face when adapting to remote work and the gig economy?

Small and medium-sized businesses (SMBs) face a unique set of hurdles when adapting to remote work and the gig economy. Among the biggest challenges are maintaining a cohesive company culture, building lasting relationships with a workforce spread across different locations, and ensuring effective communication within remote teams. Flexible or irregular schedules can also blur work-life boundaries, making it tough for both employers and workers to strike the right balance.

On top of that, SMBs often grapple with legal uncertainties, income instability for gig workers, and the stress that comes with managing unpredictable workflows. Tackling these issues requires careful planning, well-defined policies, and reliable tools to promote collaboration and ensure compliance in an ever-changing work environment.

How can SMB buyers use workforce data to evaluate a company's health and growth potential during acquisitions?

How SMB Buyers Can Use Workforce Data

Small and medium-sized business (SMB) buyers can tap into workforce data to get a clearer picture of a company's overall health and growth potential. Metrics like employee performance, turnover rates, and workforce planning offer a window into how efficiently the company operates and how stable its teams are. Tools like HR systems, employee surveys, and feedback from management can shine a light on both strengths and areas that need improvement within the workforce.

Another key area to explore is the company's readiness to adopt AI-driven tools and its capacity to scale operations. These insights can help buyers evaluate how well the workforce can support future growth and align with long-term objectives. This data-driven approach ensures that the team is set up to meet the buyer’s goals and seamlessly integrate into their broader plans.

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