Recruitment sector - a tale of 2 halves

31.07.2020
Despite the dramatic impact of Covid, funding is not an obstacle for recruitment companies wanting to do deals, “with a wall of cash waiting to be spent”.

This is according to the author of BDO’s report BDO report on the recruitment sector covering the first half of 2020.

James Fieldhouse, M&A managing director at the accountancy and business advisory firm, told Recruiter that while the number of deals in the UK plummeted from 18 in H1 of 2019, to just nine in 2020, funding was still available for the right types of recruitment businesses. 

“In terms of the M&A market, both in respect of emerging acquisitions, but also funding for businesses going forward, I think fundamentally there remains funding options for good recruitment businesses serving resilient sectors and markets,” said Fieldhouse, adding “there might be more interest in technology-enabled recruitment businesses”.

He continued: “You have private equity [PE], and private capital, and early stage venture capital, so there is still a sort of wall of cash available to be spent, and that undoubtedly leads to transactional activity.

“The challenge in the short term is access to debt because banks are supporting their existing portfolio and clients with CBILs [Coronavirus Business Interruption Loans]. They are still engaged in that process and are likely to be over the next quarter,” added Fieldhouse. However, “that liquidity should return in the fourth quarter”, he said. 

“Going forward, based on recent discussions with prospective acquirers/investors, we anticipate seeing cash-rich, well-capitalised recruitment groups or investment firms continuing to be acquisitive, albeit with some preferring to seek out more opportunistic acquisitions,” continues Fieldhouse in his foreword to the report.

BDO’s report reveals that despite the damaging effects of Covid on the sector, illustrated by the largest quarterly decrease in vacancies since comparable records began in 2001, and at one stage a 42% fall in the value of UK-listed staffing companies, PE in particular continues to take a keen interest in the sector. 

According to the report, “this increased activity was anticipated given the level of capital that has been raised by institutional investors, family offices and high net worth individuals, as well as lower than expected deal volumes during 2019”.

BDO says that globally, PE was involved in around 30% of all deals transacted so far this year. The report notes that this is actually an increase in activity by PE, and is similar to the total number of deals involving PE during the whole of 2019. 

The report mentions of couple of UK examples: MML’s investment into Spencer Ogden and Bridgepoint Development Capital’s investment into Matrix SCM during June, which was supported by BDO. The report identifies digitalisation as an ongoing trend in the sector, citing Adecco’s investment in Tempo.  

Key facts & figures

  • M&A activity globally fell from 58 deals in H1 of 2019 to 44 deals recorded by the end of June 2020
  • 33 of these were completed during Q1, but only 11 in Q2 as the pandemic took hold
  • A 50% drop in UK deals from 18 in H1 of 2019 to nine in H1 of 2020
  • 33% of deals in the UK so far this year are in the recruitment technology sub-sector
  • A recovery in the value of UK-listed staffing companies from a decline of 42% below its value 12 months ago to 24% lower at the end of June.
Posted by: Ben Knight

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