Recruitment group and serial acquirer Imprint may have announced last month that it’s taking a break from buyouts for a while, but the rest of the recruitment industry is gearing up for a lot more merger and acquisition (M&A) activity.

According to the advisory firms that help recruitment agencies devise exit strategies, the period between now and next spring could be the ideal time to sell your business.

They argue that with stock market flotations on the increase, strong sets of results from many recruitment companies and an upturn in demand for staff, the market is the most buoyant it has been in years.

“There are a lot of buyers around at the moment,” says John Bissell, senior partner at recruitment M&A adviser Linsey Bissell Associates. “After 2001 the market was stagnant for a couple of years, but there’s been a surge in mergers and acquisitions this year.”

Bissell adds that buyers are even looking to acquire permanent recruitment businesses, which historically have been difficult to sell because they suffer more during economic downturns.

Paul Saunders, client director at Lloyds TSB Commercial Finance, agrees. “It certainly feels like a good time to sell. We’ve seen a couple of years of growth, so some of the agencies that were thinking about their exit strategies a while ago will have more value in their balance sheets, which will make them more attractive to buyers,” he says.

Some markets are seeing more activity than others, according to Tom Phipps, a recruitment specialist at finance advisory firm Livingstone Guarantee. “Hot sectors at the moment are financial services, education and social care. IT has been quiet for a while but there may be some pent-up activity,” he says.

Phipps points to recent acquisitions by Quantica and Premier Group in the financial services market, and education-related purchases by Hotgroup and Public Recruitment Group, as evidence of more heated activity in these sectors.

And because the stock market is relatively buoyant, publicly-listed recruiters can lay their hands on acquisition funds more easily. Venture capitalists also have money to invest, according to Phipps, although some have legacy investments in recruitment companies that are yet to realise their potential through a sale.

A quality management team is top of their shopping list when it comes to investing in the recruitment sector, he adds.

A little multiplication
Gone are the days, however, when recruitment firms could command outlandish valuations and sell up for many times their actual value. Multiples – an indication of future value based on how many multiples of the firm’s earnings before tax a buyer will pay for a company – are far more realistic than they were in the late 1990s and early 2000.

“Hopefully owner/managers now realise that they won’t achieve double-digit multiples,” says Phipps. “To get seven or eight times your business’s earnings you need to be special. You need to be a business with a critical mass in a market that’s attractive and where there’s demand from buyers, such as education.”

And with so many buyers around, agencies looking to sell need to prepare carefully to ensure their businesses withstand scrutiny. Kevin Barrow, a lawyer at Tarlo Lyons, likens the process to preparing to put your house up for sale. “You make sure there’s no damp or rot, and that you’ve got bread baking in the oven when someone comes to view,” he says.

It’s not just about your firm’s financial health, either. While profits are important, potential buyers will also be looking at factors such as the longevity of your client relationships and levels of staff turnover.

“Valuing recruitment businesses is a lot more complicated than other business because there’s so much tied up in goodwill,” explains Bissell.

But if you’re contemplating selling your business, don’t leave it too long. Some experts believe the current positive economic climate won’t last forever.

“I think there’ll be a slowdown next year – not a recession as

such – but the economy will go flat for a time,” says Bissell. “Those people who think they might sell in the next two or three years are probably bringing their plans forward.”

Phipps is similarly cautious. “The market’s buoyant now, and should remain so for at least a year,” he says. “Beyond that? It’s difficult to call.”