To Sell or Not to Sell

(that is the question)

In reframing phraseology from Shakespeare, this is the question that is on many PEO business owners’ minds. Is it the right time to sell my PEO? This article will briefly cover aspects a PEO owner should consider when weighing this important decision.

Market Timing

Market climate plays a part in valuations. While it is not the only variable to consider, market climate should not be ignored. Just like real estate, some PEOs hold their value better than others during market fluctuations. Scale, profitability, growth, and strong risk mitigation help PEOs hold value better during economic undulation, though there will often still be fluctuations in multiples and terms based on the market climate.

Current Market: as of Q1 2025 the PEO industry is currently in a sellers’ market.

Historic Trending

Which direction is your PEO headed as it pertains to revenue, COGS, GP, Expenses, Profit, and EBITDA? If your PEO is on a growth curve, it courts higher valuations. If your PEO is on a decline, this can court lower valuations. Understanding your PEO’s historic financial performance coupled with the drivers behind the trending will help Ownership understand if the timing of a sale is appropriate.

Trending: even if a PEO is growing, it may still have a lower valuation during a down economic turn rather than selling in a sellers’ market. For example, if a PEO had an AEBITDA of $2mm during a hot market and grew by 20% then sold in a cold market, the valuation may be the same. Example: $2mm X 10X = $20mm (hot market) versus $2.4mm X 8X = $19.2mm (cold market).

Profit

What does your PEO profit margins look like? The ability to generate appropriate profit is a key factor in valuations. This is reviewed in two primary ways. 1) what level does your PEO price its services at? 2) How many profit pools does your PEO yolk? PEOs with strong (and sustainable) profit margins court higher valuations. One, because the base AEBITDA to which a multiple is applied is higher. Two, because strong PEO margins when combined with good client retention and strong growth, gives a buyer confidence that they can dilute their multiple post-acquisition through profit increase.

Profit: Strong margins resulting from disciplined pricing and diversified profit pools are attractive to buyers. Razor thin margins create questions around service delivery and future price elasticity.

Opportunity and Liability

Buyers will look for opportunities to increase profitability post-transaction. Likewise, they will review potential liabilities that could negatively impact future profitability. A PEO that has created a chassis built to scale while mitigating liabilities with their insurance platforms and HR infrastructure is better positioned to fetch a higher multiple than those PEOs that have weak infrastructure and a history of liabilities.

Opportunity and Liability: no PEO is perfect. However, ownership should review their framework to determine if their PEO is attractive for an acquisition or if the organization lacks adequate controls.

Representation

Having the right representation through a transaction may be more important than you may think. A sell-side advisor that thoroughly understands PEO and can guide your organization through a successful process is key. At Business Resource Center, we utilize a proprietary approach to ensure that our clientele receive the highest possible valuation, with the most favorable terms, while partnering with the ideal suitor. Our deal statistics and references speak for themselves.

If you are interested in exploring the market, feel free to contact us at (949) 510-1126 or rob.comeau@biz-rc.com. We’ll provide you with an overview of our process and learn about what is important to you. We typically begin with a valuation analysis so that you understand what the market will yield. From there, you make the decision if the timing is right to sell your business.

Author

Rob Comeau is the CEO of Business Resource Center, Inc., an M&A advisory firm with a niche focus on PEO and adjacent industries. He is also the Founder of this online publication, NPG. Rob and his team will review and analyze your company to give you insight on whether the timing is right for you to sell your PEO.