M&A deals reveal drivers of recruitment firms strategies – City comment

Recruitment firms have adopted a host of new strategies to try and survive and thrive in the post-2007 world. In the rush of activity, it’s not easy to identify or isolate the characteristics and hallmarks of these new approaches.

Thu, 1 Aug 2013 | By Caroline Belcher, partner at Cavendish Corporate FinanceRecruitment firms have adopted a host of new strategies to try and survive and thrive in the post-2007 world. In the rush of activity, it’s not easy to identify or isolate the characteristics and hallmarks of these new approaches.

However, examine the drivers of the resurgence in merger and acquisition (M&A) deals that were seen last year and have continued into this year, and you get a unique insight and fresh perspective into the approaches that recruitment firms are taking to position themselves for the coming upturn in the global economy.
Take strategic buy-outs. They have been a major factor behind recent M&A deals, accounting for close to 90% of sector deal flow between 2010 and the first half of 2013. Two drivers are clear: geographical expansion and sector diversification.

In looking to expand geographically, recruitment firms are responding to increasing pressure from ever more international clients which need HR services with a similar global reach. Deals have typically involved the larger recruitment firms acquiring companies with a strong presence in a region where they want to bolster their own operations, typified by Adecco Group’s acquisition in early 2012 of VSN, a leading provider of professional staffing services in Japan, aimed at expanding Adecco’s presence in Asia.

Sector diversification is being driven by clients’ clamour for specialists in particular areas and industries. To meet this demand, recruitment companies have been acquiring firms that have already established themselves in certain sectors or niches. Probably the most sought after niche firms are those in technology, media and telecommunications, oil and gas, healthcare, and education. A good example is the LGV-led purchase of Air Energi, a provider of technical expertise to the global oil and gas industry that already had a significant global presence from which to build.

Another driver of M&A has been a desire to acquire temporary staffing businesses. As the global economy has been slowly recovering, risk-averse employers have put great emphasis on the use of contingent workforces to maintain flexibility and efficiency – their use was up by, on average, around 10% over the past two years in the US.
Undertaking online acquisitions, to counter the impact of job boards, LinkedIn and other web-based recruitment challengers, has also been a strong deal driver. Without a strong online presence, recruiters not only seem out of touch but miss out on the vast amount of talent – including many highly experienced professionals – making use of the internet either to actively job hunt or subtly review their options. For instance, we recently advised on the sale of IT Job Board to US-based Dice Holdings, which was looking to expand its online recruitment offering to Europe in order to grow the business.

Lastly, service diversification is another key factor behind M&A deals. Recruitment firms are creating divisions of new umbrella services that go beyond their traditional job search offerings. To strengthen their suite of services, recruitment firms are moving into recruitment process outsourcing, workforce management solutions or professional/specialist staffing, with acquisitions the main tactic to achieve this.

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