Sterling's fall affects UK staffing M&As

Analysts and mergers & acquisitions professionals say the fall in the value of sterling against other major currencies since the UK’s vote to leave the EU has important consequences for the staffing sector.
Sat, 1 October 2016 | By Colin Cottell

FROM OCTOBER'S RECRUITER MAGAZINE

Analysts and mergers & acquisitions professionals say the fall in the value of sterling against other major currencies since the UK’s vote to leave the EU has important consequences for the staffing sector.

Following the Brexit vote on 23 June, the value of the pound plummeted against the dollar, the euro and the yen. More than two months on, the value of the pound remains well below its pre-Brexit vote level.

Kevin Lapwood, deputy chief executive at Capital Access Group, a corporate broking company, says the immediate consequences for many UK staffing companies have been positive. “Most of the quoted UK staffing companies have much bigger businesses and earnings in dollars, which, when translated back into sterling, means a lot more pounds than before,” he says. “We are talking about a 5-10% uplift in everything; revenue and pre-tax profits,” says Lapwood, citing Robert Walters and SThree as particular beneficiaries.

Sue Dodd, director of Agile Intelligence, says among others to gain are PageGroup, Hays and Phaidon International. She estimates that because not all overseas earnings are in dollars, a 10% drop in sterling against the dollar equates to an 8% overall uplift in 60% of the earnings of UK recruiters that operate internationally. She says another consequence of sterling’s devaluation is to make UK staffing companies cheaper and therefore more attractive to overseas buyers. 

Philip Ellis, owner of Optima Corporate Finance, advised Japanese staffing business Trust Tech on its acquisition of North-East staffing and training company MTrec, a £17.1m deal that completed at the end of August. He says this could encourage more interest from foreign buyers. “It certainly makes the UK an attractive place for inward investment,” adds Lapwood.

However, Ellis cautions that the issue is more nuanced than it first appears. “Potential investors have to take a view as to whether this is a permanent devaluation,” he says. A further complication is that any earnings booked in sterling lose their value when translated back into the foreign buyer’s home currency. The picture is further muddied by uncertainty over the outcome of Brexit negotiations, says Ellis, but sectors such as healthcare and teaching are among those least likely to be negatively affected by the outcome of the Brexit negotiations. Dodd says that, in contrast, recruitment businesses “that bring in staff from Eastern Europe to work in food processing plants in the East of England” are more likely to be hit by restrictions on freedom of movement, thereby lessening overseas interest. 

Ellis says the importance of currency rates in the minds of overseas investors shouldn’t be over-estimated. Referring to the Japanese, he says: “I think the main driver to get into the UK is that it is an established and reputable market, with relatively friendly regulatory requirements. They are getting businesses with a long-term record that are relatively stable.”


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