The recruitment sector could be set for a slowdown in merger and acquisition activity following the flurry of deals in recent months, according to a director at an investment bank.

Tom Phipps, of Livingstone Partners, told Recruiter that the credit crunch being experienced by banks could have an effect on the number of M&A deals going through.

The current conditions in the financial market, where banks have been left with high levels of debt that they cannot sell on, means that it is more expensive to borrow money. This, argues Phipps, will have an effect on deals in the recruitment industry.

"I think we'll see a downturn in M&A activity but I'm not sure how hard the fall will be," said Phipps.

"There is an underlying cycle that the market is going through and a downturn has a certain amount of inevitability about it."

Phipps would advise businesses looking to buy that they should look at targets "from the point of view of what happens if there is a downturn".

Livingstone Partners has been involved in three major deals in recent months — the sale of property specialist Judd Farris to MPS, private equity firm RJD Partners' acquisition of Teaching Personnel and NVM Private Equity's buyout of Astbury Marsden.

Phipps' view was backed up by Richard Beavan, partner at law firm Nabarro, which has negotiated a number of M&A deals.

Beavan told Recruiter: "If banks are stretched in terms of their liquidity, then it's going to make debt more expensive."