M&A in recruitment: outlook for the year ahead

In the three months leading up to October 2018 the number of people employed rose by 79,000 compared to the three months prior. This has reinforced the recruitment industry growth, which grew to £12.3 billion in 2018 from £8 billion in 2014. Overall the UK recruitment market grew 2.8% in 2018, this growth is expected to continue for the next 5 years. There was concern over the impact of Brexit however the UK labour market remains strong, continuing over 40 years of high rates of employment. The strength of the UK economy is unquestionable as the beginning of 2019 saw predictions of 1.2% GDP growth throughout the whole of 2019.

Due to the recruitment sectors’ reliability it has become a strong market in mergers and acquisitions, shown by 172 deals taking place in 2018 in the UK and US.  The acquisitions of UK recruitment businesses reached a 5-year peak with 116 deals taking place, positioning the UK in first place for mergers and acquisitions of recruitment globally. An important acquisition took place in February which saw Jobsearch Employment Agency acquired by M65 Recruitment Group Ltd.

This highlights the clear strength of the sector which is marked by its continued growth. The recruitment sector accounted for 4% of deal activity in 2017 and 15% in 2018 in the UK.  Particularly active segments included online recruitment and specialist recruitment agencies, noted in an 11% increase in deals within these segments. The average EV/EBITDA multiple was 10.4 times ahead of 2017’s 9.9x average. This could be indicative of the overall strength of the UK jobs market.

Sitec Design Ltd’s acquisition by Belcan Corporation highlights the desirability of specialist recruitment particularly those operating in the engineering sector.The acquisition was for an undisclosed amount at the beginning of February. This continued into March when Sanne Fiduciary Services acquired Robert Walters plc for £2.85 million.

A large proportion of interest was generated from overseas buyers, attention that has been growing steadily and now accounts for 25% of buyers in recruitment in the UK. Key segments included recruitment specialists who cater to the construction and engineering sectors emphasising the importance of these sectors, both within the UK and global economy. These segments attracted interest from overseas buyers in both Japan and America in early 2019.

Another key increase came from the number of private equity deals. This began in 2017 which saw a 50% increase from the number of investor levels in 2016. Whilst these levels are stabilising, private equity deals still account for a sizeable portion of recruitment mergers and acquisitions. A notable example of this was Cielo Inc who benefitted from a private equity investment earlier this year.

The strength of mergers and acquisitions in recruitment was seen in the last 6 months, with notable activity coming from Operam Education Group plc and Access UK Ltd and Gordon Dadds Group plc who were the most acquisitive in the last 6 months. Gordon Dadds Group plc ranked highest on Zephyr by completing £34 million worth of deals in the past 6 months.

Allen Lane Topco was keen to benefit from the strong mergers and acquisitions market when they sold 82.5% of its shares to Outsourcing Inc for £21.33 million in August 2018.  Nick Davis, Head of Corporate and the Recruitment Services Group stated that,

“This deal is a great example of the thriving activity that we are currently seeing within the recruitment sector. Outsourcing are a respected Japanese firm looking to expand into the UK market and the purchase of Allen Lane is a key part of achieving that goal.  We were very pleased to be working on this deal and we are delighted to have reached such a good outcome for both sides. Again, it shows our pre-eminence as a law firm operating in the recruitment services sector”

One acquisition that garnered particular interest was Harvey Nash Group plc’s acquisition of The Power of Talent Ltd, which is owned and controlled by DBAY for a deal value of £92.32 million in late December 2018.  Julie Baddeley, Chairman of Harvey Nash commented,

“Harvey Nash’s acquisition strategy and successful transformation programme has resulted in significant shareholder value being created over the past two years.

Independent Harvey Nash Directors intend to recommend unanimously that Harvey Nash Shareholders vote in favour of the Scheme at the Court Meeting and the Special Resolution to be proposed at the Harvey Nash General Meeting.”

In conclusion, acquisitions of UK recruitment that are set to continue to grow throughout 2019. This will be seen in a number of ways including an increase of acquisitions of industry specific recruitment agencies, in particular those within the IT sector. This is due to the strong recruitment sector backed by the growing UK jobs market and the increased need for tech support in a changing work environment. Healthcare and construction recruitment are also thought to be strong targets for acquisition for the continuation of 2019. This has been reflected by KBS Corporate receiving a great deal of interest from recruitment agencies looking to sell recently, which has been a reaction to increased buyer appetite for such businesses. Finally, it is believed that there will be an increase in the number of oversea acquirers as the UK repositions itself in the global market, which is supported by a series of rumoured acquisitions within the UK recruitment sector.