Private equity deals in staffing firms on the up and up

Private equity (PE) will continue to increase its share of M&A transactions at the expense of trade transactions between staffing companies.

The Recruitment Sector Insights Report 2017 by the M&A team at accountants BDO reveals that globally the number of transactions in which PE was involved shot up to 29 in 2016, making up 24% of total deals. This compares with around 15 a year between 2012 and 2015.

The report says that while trade deals still make up the majority of the transactions, “PE are now beginning to take away trade’s share showing they have a keen appetite in the market and are able to compete in negotiations for the best assets”.

James Fieldhouse, M&A director at BDO, explained that PE saw recruitment as an attractive sector in which to put to use the huge amounts of capital it has raised in recent years. Fieldhouse told Recruiter: “There has been so much capital raised by PE over the last few years. They are all trying to chase good quality assets in which to invest and the recruitment industry continues to produce a number of these.

“PE will always look to assets where there is a good management team and if they are in fast-growing sectors such as healthcare, IT, technology or other a niche sectors where they can look to get a return on their investment by exiting in the future.”

A further attraction of recruitment to PE was that when it came to exiting there was no shortage of acquirers “both domestically and globally”.

Among the deals in the UK in 2016 involving PE were Growth Capital Partner’s acquisition of Shorterm Group and US-based TPG’s purchase of Frank Recruitment Group, “the latter representing a good example of overseas PE investing into the UK recruitment sector”, says the report. 

Fieldhouse said he expected to see the proportion of M&A transactions involving PE continuing to grow, at the expense of trade deals. “There is a lot of PE money still to invest in various sectors across the economy from US and European PE,” he said.  

The biggest threats to this trend continuing were if the UK economy weakened, and Brexit, Fieldhouse said. But against that, he said foreign currency movements since the Brexit vote meant that UK assets have got cheaper for foreign investors, making them more attractive.

BDO’s report paints a picture of M&A activity in the recruitment sector in rude health. Globally, it says, M&A activity “continues to thrive”, with 119 deals completed in 2016, a rise of 70% since 2012. The report identifies the UK as a particular hotspot, with 26 transactions, ranking it number two in the world behind the US.

Other key points:

  • Healthcare accounted for 18% of M&A transactions worldwide in 2016, of which five were PE acquisitions
  • In 2016 40% of deals involved generalist recruiters
  • In the last five years more than 10% of deals involved a non-recruitment buyer or vendor from the same industry sector
  • The share prices of listed recruitment companies have massively outperformed the market – a rise of 180% over the past five years compared with a 28% gain for the FTSE All-share Index
  • Since 2012, 25% of UK transactions involved an overseas buyer.

Microsoft teams up with SThree to improve operations

SThree, the leading STEM-specialist staffing group, has announced a collaboration with Microsoft that is intended to power its industry-leading Technology Improvement Programme.

Contracts 26 March 2024

NEW TO THE MARKET: 25-30 MARCH 2024

This week’s new launches include: ID Crypt Global, Indeed, N2S.Global, Quesam, Talmix

New to Market 26 March 2024

Businesses must use AI in ‘all its formats’ says Martin-Fagg

UK businesses need to use technology such as AI to increase productivity, emphasise a ‘customer first’ attitude and grow by increasing market share.

22 March 2024

HeadFirst and Impellam groups join forces

HeadFirst Group and Impellam Group have joined forces to become one of the world’s leading STEM talent and managed service providers.

Contracts 22 March 2024
Top