Shrugging off the recession

With a record number of new entrants to this year’s Recruiter FAST 50, compiled by Boxington Corporate Finance, find out what is driving the growth of these recruiters and what the future holds for the industry.

Mon, 26 Jan 2015With a record number of new entrants to this year’s Recruiter FAST 50, compiled by Boxington Corporate Finance, find out what is driving the growth of these recruiters and what the future holds for the industry.

After the carnage caused by recession of the late ‘noughties’, this year’s FAST 50 proves that the recruitment industry is finally back on track, according to leading human capital specialist mergers & acquisitions (M&A) advisers Boxington Corporate Finance, compilers for the last seven years of the Recruiter FAST 50 league table. The FAST 50 ranks the fastest-growing private recruitment businesses in the UK, according to three-year compound annual growth and based wholly on audited figures (see Methodology box below). 

This year the FAST 50 is sponsored by Hitachi Capital Invoice Finance.

“This is the first genuinely post-recession FAST 50 we have compiled in that it measures company growth over years that are not impacted by the recession. So it’s representative of the sector’s more natural and sustainable rate of growth,” says Tim Evans, founder and managing director of Boxington, speaking of the 2015 rankings, which show an impressive average annual growth rate across the FAST 50 of 36.3%. This is a significant jump from the 26% achieved three years ago when the sector was still suffering from the effects of the downturn.

This level of growth comes against a backdrop of an industry that in the 2013/14 financial year surged past its pre-recession peak, with total revenues hitting £28.7bn, according to figures from the Recruitment & Employment Confederation (REC).

New generation

Reflecting on this year’s results, Mark Kingston, assistant director at Boxington, comments that with a record 31 of this year’s FAST 50 recruiters new to the list, “post-recession, we could be looking at a new generation of growth recruitment businesses”.

“The high number of new entrants underlines the inherent scalability and low barriers to entry of recruitment businesses, as well as the sector’s ability to constantly self-renew and regenerate,” he adds. Indeed, new entrants make up nine out of the top 10 companies, including the top-ranked recruiter, GatenbySanderson (69% growth), with only one of the top 10, IT recruiter People Source, remaining from last year. “Some of the new entrants just come out of nowhere, while some from previous years have virtually disappeared from our FAST 50 radar,” says Kingston.
 
“Conversely, the volume of new entrants is a reminder that many other recruitment companies have come and gone, and that the challenge of sustainability and longevity remains significant for the sector,” he adds. Evans comments that “FAST 50 2015 new entrants include both relatively newer brands, such as energy recruiter Spencer Ogden (2nd) and financial services recruiter Grovelands Resourcing (6th), as well as older established brands such as this year’s overall winner, public sector specialist GatenbySanderson, which has used deep sector know-how and relationships to power impressive growth”.

Looking at the FAST 50 as a whole, Evans concludes that “it yet again confirms the vibrancy of the recruitment sector, with players achieving growth across a range of recruitment sectors in the UK and internationally”.

New normal

So what else does the post-recessionary new normal look like? Among the new entrants, Evans highlights “a number of very interesting specialist players including Grovelands and Huntswood in the finance and regulatory sector”. He attributes the high growth rates of both companies to demand for specialist compliance staff in the wake of scandals such as payment protection insurance (PPI) and a general tightening of financial services regulation.

A number of large private equity-backed companies, namely oil & gas recruiters Air Energi (20th) and Fircroft (39th) and healthcare recruiter Independent Clinical Services (43rd), have all sustained growth rates of more than 25%, despite their large scale, largely on the back of overseas expansion and acquisition. “This may suggest that private equity is a key influence on growth by contributing finance, strategic guidance and experience,” says Evans.

The performance of Fircroft, the biggest company in the FAST 50, with annual revenues of over £900m, is particularly noteworthy, he says, given the inherent difficulty for such a large company to match the percentage-based growth rates of smaller firms. Fircroft has now appeared in six consecutive Recruiter FAST 50s. Healthcare recruiter ID Medical also demonstrated its staying power by retaining a place on the list for the fifth year in a row.  

Kingston says that common denominators among this year’s FAST 50 companies include entrepreneurial spirit, the quality of management teams and the fact that irrespective of sector, they are “typically founder driven”. Compared with companies outside the FAST 50, which at times tend to “just chase NFI [net fee income]”, adds Kingston, “most entrants have a sense of overriding strategy”. He cites Spencer Ogden by way of example, which he says “combines a clear sector specialism with aggressive overseas expansion”. IT, banking, oil & gas recruiter Amoria Bond, which opened an office in Singapore to facilitate its Asia growth, and is founder-driven, also “ticks the boxes”, adds Kingston.

While organic growth has been the main driver of growth in the 2015 FAST 50, Evans says that a small number of companies have expanded on the back of successful acquisition strategies. These include industrial recruiter gap personnel, and IT and technical recruiter Outsource UK. Overall, however, he says that for a number of reasons M&A has not been as big a driver of growth of companies in FAST 50 2015 as in previous years.

With many Japanese, European and US buyer companies currently busy assessing targets across the sector, Evans expects that some current and previous FAST 50 entrants will no longer be independent this time next year.

Sectors matter

Industry sector is always an interesting part of the make-up of the FAST 50, and this FAST 50 is no exception. Compared with 2014, one of the biggest differences is the relatively poor showing of IT recruiters, whose numbers have dropped dramatically from nine to five from last year. “We attribute to this to RPO [recruitment process outsourcing] and managed service providers increasingly taking turnover from recruiters,” says Kingston.

Multi-sector recruiters remain the biggest group within the FAST 50 with 15 representatives, albeit down slightly from 18 in 2014. “Multi-sector players will always benefit where there has been economic buoyancy because of their ability to generate sales across a wide range of markets,” says Kingston. However, Evans adds that only one firm in the top 10 is a multi-sector player. “This highlights that to get the higher growth rate you really have to be a specialist these days,” he adds.
 
Healthcare is once again strongly represented, making up 16% of the FAST 50 compared with 12% last year. Engineering and technical recruiters with a 10% representation also perform strongly, although Evans notes the absence of a number of “big international engineers” such as Orion Group, NES Global Talent and Rullion that have been a feature of previous FAST 50s. Evans suggests that their absence and the emergence of smaller, more locally-focused firms reflects international headwinds faced by the larger global businesses.
 
Oil & gas recruiters continue to feature strongly, with nine companies in FAST 50 2015. According to Evans: “They have benefitted from strong energy and commodity markets over the past five years, and associated high demand for labour in what has been a tight labour market for specialist labour.” However, he adds: “It has yet to be seen whether this can be maintained given the recent and ongoing volatility in international energy prices and exchange rates.”

Future prospects

Looking ahead to the prospects for the 2016 FAST 50, Evans says many good businesses are growing at more than 20%, which are currently just outside the FAST 50. And by way of examples he identifies change and transformation specialist Alexander Ash, and niche technology specialist ConSol Partners as likely new entrants next year.

As to the future for the recruitment sector as a whole, Evans acknowledges uncertainties ahead. In the short term these include next May’s general election, increased scrutiny over healthcare spending and salary sacrifice schemes. In the medium to long terms, he highlights the growing importance of RPO and managed services, as well as the threat of disruptive technology and issues arising from the management of big data. Despite these clouds on the horizon, however, Evans and his Boxington colleagues remain confident about growth prospects for next year’s FAST 50 and its top performers. “We would expect these growth rates to continue next year and probably [go] higher too,” he says.  

If Evans is right, the 2015 FAST 50 could both mark the point when recruitment finally emerges from the long shadow of the recession and, unless the wheels come off the economy again, signal better times ahead for the sector.

Click here to see the complete 2015 FAST 50. 


Methodology

The Recruiter FAST 50 prepared by Boxington Corporate Finance lists the fastest-growing private recruitment businesses in the UK according to compound annual sales growth rate as measured over each entrant’s most recent three-year financial reporting period.

Criteria for inclusion: The FAST 50 assesses temporary and/or permanent recruitment companies which are registered in the UK as private, independent and unquoted companies. This category includes private companies that are co-owned by private equity. All companies considered for inclusion in the FAST 50 2015 must achieve a level of annual sales of £5m or above in each of their last three financial years.

Exclusions: Companies that have filed abbreviated accounts at Companies House without disclosing audited sales are excluded from the FAST 50 due to the absence of independently validated sales. Unaudited management accounts are not accepted as proof of sales. Companies that serve the recruitment sector through the provision of IT, payroll, administrative or other services also do not quality.

Data collection methods: Qualifying companies are identified by Boxington through several research methods including the analysis of sector information from Companies House, financial databases, press coverage and other research and proprietary knowledge. Entry submissions are not therefore required, although any firm which believes that it may not be automatically assessed in the 2016 FAST 50 may contact Boxington Corporate Finance to discuss. Please email fast50@boxington.co.uk



About Boxington:

Boxington Corporate Finance is an international sell-side M&A advisory house based in London and Tokyo and uniquely specialising in the human capital sector.
www.boxington.co.uk

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