As recruitment M&A continues to outperform, Keely Woodley and Carl Parker explain the reasons behind the sector’s long-standing appeal.
In our biannual summary of deal activity in the recruitment sector we reveal:
- deal volumes over the last two quarters (Q4 2021 & Q1 2022)
- why there’s an increase in UK-US activity
- which subsectors are growing and why
- whether the sector’s appeal is here to stay
2022 is off to a strong start with bumper deal volumes
UK recruitment targets - M&A quarterly trends
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Deal volumes in the recruitment sector have remained robust since our last update in October 2021. Some 18 deals were announced in Q4 2021, followed by 23 in Q1 2022, which represents the strongest quarter since the COVID-19 catch-up of Q4 2020.
Job vacancies continued to climb to record levels – approaching 1.3& million as per latest ONS figures.Against this backdrop, investors backed new growth areas and focused on specialisms.
Seeking specialisms
September 2021 - Private equity firm NorthEdge backed the primary management buy-out of life sciences recruitment company Meet, which specialises in Pharma, Med-Tech and Healthcare Comms. The deal will fund Meet’s expansion, including a more than doubling of personnel. We supported on buy-side advisory.
Private equity interest
Financial investor interest in recruitment remains strong for reasons covered in our previous update. PE/VC buyers were involved in 43% of deal completions in the sector in Q1 2022, which compares with 56% in Q4 2021.
International activity:
Of the cross-border deals in the six months to April 2022, 60% involved US buyers, compared to 11% in the six months prior. We attribute the dynamics between the US and UK markets to the following four factors:
An offer letter from America
December 2021 - New York’s ZRG (backed by RFE Investment Partners) acquired London-based executive search firm Walter James, which has a focus on supply chain management. The acquisition adds another vertical to ZRG’s offering.
February 2022 -San Francisco software firm SmartRecruiters acquired UK-based Attrax which helps companies build personalised career sites.
Which subsectors are taking off?
Sector breakdown – last six months (Q4 2021 and Q1 2022)
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The double: combining tech and professional services
Sector specialists accounted for 59% of UK recruitment M&A activity over the last two quarters. Digital, IT & Technology remained the favourite, accounting for 29% of sector-specific deals, compared to 15% in the six months prior. This is due to a focus on digital transformation that was accelerated by coronavirus. Interest in financial and professional services also rocketed, accounting for 7% of sector-specific deals in the six months to October 2021 to 21% in the six months to April 2022.
January 2022 – Soho Square took a minority stake in global recruitment firm Oliver James, specialists in technology, accountancy and finance, and engineering. The deal will fund international expansion and further investment in its proprietary technology. We supported on buy-side advisory.
Life science takes off
The global pandemic has raised the profile of life sciences, with three notable deals over the last six months, in addition to the Meet deal mentioned above.
November 2021 – Agathos backed a management buy-out of Hunter Healthcare, specialists in the NHS, private healthcare, and life sciences. The funding will enable Hunter to break into new and growing markets. We supported on debt advisory, financial modelling and exit-planning research.
February 2022 - Rowan Recruitment Ltd acquired life sciences recruitment specialist Claro Search and Selection, having identified life sciences as a 'key high growth market.'
February 2022 – The management team of PIR International a provider of executive search to the global life science industry completed an MBO from its founder.
Renewable energy play
Macro politics will always influence demand for recruitment. The UK Government’s 2021 Net Zero strategy has created a need for ESG recruitment specialists.
December 2021 – Dutch recruitment group Brunel International acquired Scottish firm Taylor Hopkinson, which bills itself as the biggest pure-play renewable energy team in the world.
Recruitment M&A: lasting attraction
The record rise in UK job vacancies and competitive multiples obtained by UK sellers shine a spotlight on recruitment M&A. Other factors also contribute to the sector’s long-term resilience:
Flexible working will increase job market fluidity
After a period of ‘will we/won’t we go back to the office’, the decision has fallen in favour of hybrid working. This has major implications for how companies recruit.
Talent pools are suddenly global – companies have recognised that ‘remote working works’, meaning they can cherry-pick talent from across the globe – no problem if the project manager is in Italy and the programmer in Poland. This presents opportunities for recruiters who can navigate the resulting tax and contract implications.
New normal, new opportunities
March 2022 – homeworking recruitment platform Omnipresent raised USD 120 million in its Series B funding round.
Omnipresent’s tech enables companies to compliantly onboard employees in over 150 countries, taking care of local contracts, tax, and benefits.
It's easier for employees to search for a new job while working from home – no more sneaking into a meeting room to chat with a recruiter, or 'dentist appointment' to attend an interview. This may seem a frivolous point but will provide a more than marginal fillip to the recruitment industry. The skills shortage won’t be solved soon.
One of the biggest constraints for business growth is a lack of suitable talent. The underlying drivers of this, an ageing workforce and skills shortage in growth areas such as ESG and tech, are not going away. As we mentioned in our last report, there are opportunities for recruitment companies that can expand into training or learning and development, solving the supply problem and creating an end-to-end service for their clients. Train to Deploy offers recruitment organisations a way to compete with consultancy firms and RPO providers by fixing the skills shortage for their clients.
Globalisation equals resilience
The globalisation of the recruitment sector has been accelerated by a move to hybrid working. Recruiters that serve multiple geographies can protect themselves against local market changes, driven by macro events, such as a pandemic or demand for oil and gas. For example, Asia’s recruitment market is currently impacted by high coronavirus numbers, whereas Europe has returned to pre-pandemic performance.
No sector is perfect and any investment must be based on solid fundamentals, a clear growth opportunity and due diligence.
For help with this or to further continue the conversation in this report, please get in touch get in touch with Keely Woodley and Carl Parker.