The state of the M&A market in the recruitment sector

Posted on: December 21st, 2016

Despite Brexit, merger and acquisitions in the recruitment sector were up on last year’s numbers with 55 deals completed involving UK and Irish target companies. Deal activity was particularly strong in the sub £50m space with small and medium sized companies seeking to add scale and new capabilities to their existing services. As is often the case, the sector follows the job market, with new jobs created post the June vote increasing in line with the two previous quarters.

Professional services and technology recruiters are perhaps the most at risk from a Brexit ‘talent block’ due to their reliance on professional migration from the EU. However, whilst the longer-term impacts remain uncertain we think that M&A activity will remain resilient with quality recruitment businesses continuing to attract interest from both strategic buyers and private equity.

This will be aided by the fact:

  • Quoted recruitment companies continue to benefit from the weak sterling with the majority exporting a bigger proportion of their services to the US.
  • Private equity still has significant capital to deploy and will remain interested in specialist companies in high-growth sectors.
    The established UK recruitment market will remain attractive to overseas acquirers as a result of its stability and friendly regulatory requirements.

Key deals have included:

  • Empresaria Group’s continued strategy of acquiring start-ups and SMEs by purchasing a 65% interest in IT recruitment specialist ConSol for a reported £9.4m,strengthening their presence in the IT sector
  • TES Global ‘s purchase of ABC Teachers and Smart Teachers for undisclosed deal values. These acquisitions are in-line with the company’s strategy to expand its footprint in the supply teaching market and adds valuable expertise across the Midlands and London regions
  • The management buy out of De Poel, a broadline recruiter with turnover in excess of £700m. Debt funding to support the buy-out was provided by Santander and Tosca Debt Capital.
  • This year has seen 7 private equity backed transactions in the UK recruitment sector. Interest in the sector remains with PE encouraged by the returns made by the likes of Graphite Capital on the disposal of Alexander Mann (3.5x) and Education Personnel (6x) and Livingbridge on the disposal of Frank Recruitment.

This year has seen continued overseas investment into the established UK recruitment sector. US and Asia investment continues to dominate and may be further aided by the weak pound providing opportunities to acquire cheaper assets in the UK.

Whether it is growth, diversification or exit which recruitment companies are looking for, there is reason to be optimistic that there is a market to achieve this.

*Our thanks go to Gary Ecob at Orbis Corporate Finance for some of the M&A deal history.

For further information, please contact Amanda Brockwell head of our specialist recruitment sector team on amandabrockwell@coffinmew.co.uk or 023 8057 4302.