Member Article

Recruitment sector still a ‘hive of activity’ for M&A, despite a drop in deals - BDO

The UK recruitment sector is still a ‘hive of activity’ for M&A, according to accountancy and business advisory firm BDO. This is despite a drop in deals from the post-pandemic bounce of 2021. Last year, 35 transactions – where the bidder or the vendor was based in the UK – were completed. This was down from 40 deals in 2021, but 33% higher than the average deal activity in 2019-2020, indicating the continued attractiveness of the UK recruitment sector.

The annual BDO M&A Review: Recruitment report shows the continued trend of transactions involving multi-sector agencies – or ‘generalist’ as they’re commonly termed. In the final two quarters of 2022, 26% of all UK deals involved a target within the generalist category, up 50% from 2021. The recruitment platform/software sector was the strongest performer for the second year in a row, in terms of M&A deal activity for UK-involved deals, representing almost a third of total transactions (2022: 11 deals).

Once again, the influx of private equity funding into the recruitment sector has continued, accounting for more than a third (39%) of UK transactions in 2022. Globally, recruitment deal levels have grown exponentially during 2022, with activity 50% higher than in 2021 - potentially a delayed post COVID-19 boom similar to that experienced in the more mature UK investment market in 2021.

James Fieldhouse, M&A Managing Director at BDO LLP, said: “This international activity appears to have extended to overseas acquirers and investors, who once again are viewing the UK market as a geography with a positive growth outlook, with a resulting rebound in UK targets being involved in deals with an overseas bidder during the period. As such, in 2022, 28% of UK deals involved an overseas buyer – up from 8% in 2021.”

There were a number of standout deals in the North in 2022, including IPE Ventures’ acquisition of leading industrial recruitment specialist, Taskmaster Resources Limited, trading as TaskMaster (Leeds); Soho Square’s investment in Oliver James Associates (Manchester); the MBO of Nigel Wright Group (Newcastle); US-based Pricoa Private Capital’s investment in Driver Hire Nationwide (Bradford); the acquisition of Australian technical recruiter ACRWORLD Pty Ltd by Morson Group (Manchester); and Palatine Private Equity’s investment into Skills Alliance (Pharma) Limited (Manchester).

Fieldhouse commented: “It’s fair to say that it’s been an interesting 12 months, with businesses battling several seismic macro-economic factors, ranging from a war in Ukraine, to inflation and interest rates at levels not seen before in this century, mixed in with a degree of political instability caused by a mini budget. Add to this the continued threat of a recession in the UK and labour strike activity akin to the ‘Winter of Discontent’. However, despite these factors, the M&A deal markets are alive and well, with the recruitment sector yet again being a hive of activity for acquirers and investors during 2022.”

The BDO report highlighted that the UK recruitment market has shown positive signs of recovery in 2021 and into Q1 2022, as the economy bounced back after its 2020 dip, with revenues at £16.8 billion and forecast by IBISWorld (2022) to increase 29% by March 2027 – a growth rate of 5.8% p.a. However, the lower than expected annual economic growth in 2022, and reduction in the forecast for UK growth, mean that this sector growth rate is also likely to be revised downward.

Fieldhouse added: “We look ahead with cautious optimism to another active transactional year in the recruitment sector. After a ‘boom’ year in 2021 and a degree of stability in 2022, we’re hopeful that 2023 continues to build on the positive investment themes we’ve seen during the last 12 months.

“Although UK deal volumes have declined, it seems investors still view the recruitment sector as an attractive area to invest with continued strong deal volumes during 2022. Market drivers in the recruitment sector, which have influenced the sustained high M&A activity, include: continued interest in recruitment software/platforms, reflecting the changing working patterns that look to be set as a new norm post the pandemic; high and stable levels of employment against the backdrop of a softening economic environment, demonstrating the resilience of the UK labour market; as well as increased recruitment activity in accessing temporary and short term consultancy roles, perhaps driven by volatile economic confidence.”

The BDO FTSE Recruitment Index, like the FTSE 250, showed a downward trend throughout 2022, with the recruitment index dropping further – falling from a high of c.+1.4% in January to c.-27.7% at the close against its December 2021 position. The FTSE 250 shows an overall fall, although at a less aggressive gradient, ending the year at c.-20.5%.

This was posted in Bdaily's Members' News section by Ian Jones .