Industry Insights

M&A Trends in the Recruitment Sector

More recent trends suggest that recruitment companies are inherently attractive to PE. Many companies display vital characteristics which make them appealing to investors. Such characteristics include:

growing end-user markets
diversified revenue streams with desirable blue-chip clients
strong management teams with a hunger for growth
specialisms which they are ‘famous’ for
scalable business models with the ability to diversify into new sectors or territories
cash-generative businesses with low demand for capex during the investment cycle

(BDO, 2021)

UK Deals Activity at a high-volume

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UK deal activity (where the bidder or vendor was from the UK) in the recruitment sector in 2022 has seen a continued high volume after the post-pandemic boom noted in 2021. Although the 35 deals in 2022 are down on the 40 deals in 2021, this is 33% higher than the average deal activity in 2019-2020, indicating the continued attractiveness of the UK recruitment sector.

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Looking at the data across sectors, according to BDO’s research, the “Private Company Price Index”, 2,502 UK M&A deals were noted in 2022 in total. This was down 10.1% from 2021 volumes but remained above 2,500 deals, a level only seen in 2016, 2018 and 2021 over the last decade. The overall volume trends are similar to those seen in the recruitment M&A market.

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Notably, during 2022 we’ve seen a return to overseas investment in the UK recruitment market, with 28% of deals involving a UK target being acquired by international bidders. This compares to a mere 8% during 2021 when markets were recovering from the pandemic and with acquirers focussed on domestic markets whilst also assessing the impact of Brexit in the UK.

Recruitment market stats at a glance: March 2023

The latest data shows the most robust increase in vacancies for four months, signalling an improvement in the overall demand for staff for the twenty-fifth month in a row. This rate of expansion was the sharpest recorded since last October.

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The UK economic inactivity rate was estimated at 21.3%, 0.2% lower than the previous three-month period and 1.1% higher than before the pandemic.

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The number of people in employment with second jobs fell in the early stages of the pandemic but has been steadily increasing since then, but has lost during the latest three-month period to 1.23 million (3.8% of people in employment).

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In the latest three-month period, the total weekly hours worked increased by 7.3 million hours to 1.04 billion hours. This is still 9.5 million hours below pre-pandemic levels (Signature Recruitment, 2023).

Recruitment Agencies Business Confidence

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From the data, it's evident that overall, confidence remains positive throughout the recruitment industry. However, the data does indicate that confidence levels have retracted, with a 14% change in the number of agency leaders reporting a 'very optimistic' position heading into 2023 versus 2022.

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The number of agency leaders taking a neutral position has doubled since last year's report, increasing from 14% in 2022 to 28% in 2023. Additionally, the data shows a reintroduction of the pessimistic position, a view that no agency leaders reported last year.

These movements can be attributed to various external factors, including talent shortages, economic uncertainty, and the recruitment industry settling into everyday operations and finding a consistent rhythm following a post-COVID boom. We also know that business leaders share these sentiments across almost every industry and are not exclusive to the recruitment industry (Firefish, 2022).