Strategic trade buyers accounted for three quarters of dealmaking in the recruitment sector during the first half of the year. While much M&A in the sector has been defined by private equity activity over recent years, new figures show a shift towards trade buyers targeting acquisitions.
According to BDO’s Recruitment M&A H1 2024 Snapshot, 75 per cent of H1 2024 deals involving a UK recruitment firm were conducted by trade buyers, compared to just 19 per cent being conducted by private equity firms. The remaining 6 per cent of deals involved companies being acquired by Employee Ownership Trusts (EOTs).
BDO M&A Partner James Fieldhouse states that the “sharp uptick” in trade acquisitions is “potentially indicative of current market sentiment, activity and travel” and notes that a similar trend is also noticeable in certain overseas markets.
The report identifies revenue synergies, potential cost savings via integration of back-office functions, geographic expansion and access to new sector capabilities as key motivations for strategic M&A by recruitment firms. For vendors, meanwhile, selling to a trade buyer can provide an efficient, timely exit and a valuable result for shareholders in terms of cash extraction.
Looking at deals in which the target was a UK recruitment firm, BDO found that approximately 83 per cent involved a UK buyer, whilst around 17 per cent of acquisitions were conducted by buyers from overseas.
This was up from 13 per cent in H1 2023, with BDO saying that the increase “continues to evidence the attractiveness of UK recruitment assets to overseas buyers.” Among overseas buyers, those from the US were by far the most active, accounting for 11 per cent of the overall H1 total.
The report also showed positive growth in deal volume during H1 2024, with data provided by CapitalIQ, Mergermarket and Mark to Market showing around 36 deals with UK involvement during the period, up from 24 a year earlier and 18 in H1 2022.
According to BDO, H1 2024 deal volumes were supported by both overseas investment into the UK, as well as activity by UK buyers in international markets, with UK firms showing growing confidence and willingness to undertake overseas expansion and take strategic risks to unlock longer term value and growth.
In terms of dealmaking within recruitment sub-sectors, BDO found that recruitment tech continued to be a key area, with recruitment platform/software acquisitions making up 14 per cent of the H1 2024 total.
However, they also noted that, “unlike previous periods”, there was a more even, diverse spread of dealmaking during the first half of the year. Acquisitions of multi-sector, “generalist” recruitment agencies remained strong, comprising 20 per cent of the total.
Meanwhile, there was a notable increase in deals for Executive Search firms, which also registered 20 per cent of the total. BDO stated that the large number of deals for Executive Search firms indicates that buyers “are increasingly keen to acquire highly specialist and skilled operators”.
The IT and Education recruitment sub-sectors each accounted for 11 per cent of deals. According to BDO, Education recruitment M&A and private equity investment into the sub-sector seem to have been driven by numerous factors, including the availability of funding to support schools recovering from the COVID-19 pandemic and increasing staff absences, which have led schools to utilise agencies to provide additional staff.
Other sub-sectors to see significant amounts of dealmaking activity during the first half of the year included Healthcare (8 per cent of the total), Engineering/Construction/Industrial (8 per cent) and Marketing (6 per cent).
Looking ahead to the second half of the year, James Fieldhouse states that the full impact of the Labour party’s recent election win on the recruitment sector remains to be seen. However, with the sector having successfully navigated recent shocks such as Brexit, COVID-19 and soaring inflation, he adds that the industry will be confident in remaining resilient.
UK companies are increasingly using M&A activity to keep up with rapid changes within their industries
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