Our recent market research into the UK recruitment industry has highlighted a number of interesting trends for business owners looking to buy, sell or fund the growth of a recruitment business…
1) M&A activity remains strong
• In the UK, job ads rose 23.4% in January 2023 compared to January 2022. Job vacancies are at an all-time high and employees appear to be changing jobs more often. Whilst this tempered slight in the latter part of 2022, it has since recovered.
• M&A activity continued apace in the first six months of 2022, at levels only just below the same period in 2021 when deal volume exceeded the previous peak seen in 2018 (pre-pandemic).
• There were a total of 18 deals in the first of half of 2022, compared to 19 in the same period in 2021.
• 41% of these transactions involved a foreign acquiror or investor, with the US being the most popular at 33%.
2) Four key sectors high on buyer agendas
• Being a specialist in a particular area of recruitment is becoming increasingly important to buyers.
• Life sciences, IT/technology, healthcare and education lead the way in terms of buyer demand.
• Life sciences and technology are two of the biggest areas of growth in the UK economy. The UK currently faces a substantial skills shortage in these areas which is causing fluidity in the job market as candidates realise their value.
• Healthcare and education have seen growth given that, even in times of recession, spending does not reduce as they are public services. The well documented shortages of nurses and teachers have also contributed to this demand.
• Generalist recruiters remain of interest to some buyers with 28% of deals in HY22 in this segment, up from 15-20% in previous years. Having a diversified portfolio in challenging times can be an asset.
3) Private equity houses remain interested in investing this sector
• Private equity (PE) interest remains strong in the sector, with 39% of UK deals in the first half of 2022 involving a PE investor.
• PE also being attracted to this industry by the excess demand fuelled by the ‘great resign’.
• Twenty20 Capital’s acquisition of Impellam’s UK-based specialist supply agencies for £85m is the highest profile of these recent deals.
• Other recent private equity deals include:
- Aliter Capital backing the MBO of Concept Resourcing August 2022.
- BGF investing in Harnham in May 2022 and providing further funding to Operam.
- Palatine investing in Search Consultancy in August 2022.
• However, economic headwinds and the threat of recession are starting to cool PE interest
in some sectors although more resilient industries such as tech and life sciences remain highly attractive.
• A major factor affecting PE appetite is the concentration of a recruitment agency’s top consultants. A small number of big billers increases risk as if these individuals leave the company, financial performance will obviously be adversely affected. Incentive schemes are also key to give a PE house confidence that consultants will be retained and motivated to drive growth.
4) Higher % of temporary placements driving buyer interest
• Temporary recruitment contracts are more attractive to a buyer as they offer more repeatable income, which in turn leads to higher multiples.
• Whilst a higher percentage of temporary recruitment will give an overall higher multiple, having a mix of both temporary and permanent is not an issue. Furthermore, a permanent offering can be of value as margins are higher and may offer a way into new clients, leading in turn to increased temp business.
If you'd like to discuss how we can help you fund, sell or buy a business, please contact me or book an informal chat via our website
Oliver Roper is an Assistant Manager - M&A at Shaw & Co
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