Private equity (PE) investment in the UK recruitment sector is subdued, with limited ‘dry powder’. I personally don’t see it changing during this new year. Market conditions have shifted significantly, driven by declining margins and heightened competition. Many PE firms are now looking beyond the UK for growth opportunities, which isn’t good for UK recruitment entrepreneurs.

Economic challenges in recruitment

The fallout from economic turbulence, akin to the impact of ‘mini-Truss economics’, has left the UK market vulnerable. High interest rates are squeezing businesses, particularly those reliant on debt financing, while the government’s recent budget, including the National Insurance rise and an increased living wage, are a huge blow for business owners. For recruitment firms specifically, these issues are compounded by clients demanding longer payment terms and lower margins; markets like Germany and the US are more exciting right now for PE firms.

Volatility in the market

I’m afraid to say, the recruitment sector is over-supplied, and market sentiment remains low right now. This creates a dilemma: firms must either absorb rising costs or pass them on to consumers, potentially losing business in the process. Many companies are grappling with the question of how to remain profitable in an uncertain environment, which is impacting both short-term performance and long-term strategy, and if now is the time to sell?

PE hesitancy and the path forward

Given the volatility, PE firms are cautious about deploying capital in recruitment. It’s unlikely we’ll see a significant uptick in PE-backed acquisitions in the sector in 2025. Recruitment businesses with heavy commitments should focus on consolidating their operations, reducing costs and refining their unique selling propositions (USPs) when the economy recovers. Opportunities, however, still exist for proactive and strategic businesses. The current climate favours opportunistic investors and agile firms ready to adapt and grow in niche markets. For recruitment leaders, the message is clear: this is not the time to sit back.

Looking ahead

I feel the recruitment market today is reminiscent of the post-2019 landscape: a crash followed by a recovery, but now circling back to pre-pandemic levels with marginal growth. Selling a business in this climate is challenging, as many 2024/25 financial results won’t be favourable, and valuations are unlikely to meet seller expectations, so think, when is the best time for you to seek investment?

For those leading recruitment businesses, 2025 will require a consolidated, efficient approach. Consider the following steps: Control costs: Streamline operations to maintain profitability; Refine your offerings: Ensure your services meet current market needs and emphasise your USPs; Plan strategically: Position your business for recovery and capitalise on any opportunities that arise.

If you’re concerned about navigating these challenges, reach out. There’s a path forward, but it requires focus, hard work and strategic thinking.

Nick Gordon is founder of Meraki Capital

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