M&A activity in the Recruitment Sector - H1 report
A look back:
Whilst 2020 was naturally a trickier year for recruitment businesses, the staffing sector in the UK weathered the hit in M&A fairly well with only a 19% drop in activity compared to the year prior. There were 21 M&A deals completed in total in 2020, but the most intriguing point is that 48% of those deals all happened in Q4. Of the deals in 2021, 38% were trade, 33% were PE and 29% were MBOs. Healthcare recruitment companies and RecTechs both had a strong 2020.
The extent and rapidity of the recovery was a strong indicator that activity was bouncing back in a big way and giving us reason to feel optimistic about 2021.
H1 overview:
As we come to the close of H1 we look at the positives and negatives that may have affected M&A activity; the unpredictability of the pandemic, the future implications of Brexit, but also the Spring boom in GDP growth (albeit, momentum slowing towards the end of H1) and the predicted hike in capital gains tax not going ahead in the Chancellor of the Exchequer’s budget back in March this year.
In H1 of 2021, 52% of recruitment M&A activity was private equity deals, with 39% trade and 9% MBOs. We saw a fairly even split across Q1 and Q2 with 48% taking place in the first quarter and 52% taking place in the second. Unsurprisingly, given our reliance on it during the pandemic and lockdown, RecTech was a standout in deal activity, taking up 42%. As predicted, we also saw UK businesses not headquartered in London making a really strong impact, with 45% of M&A being dominated by companies outside of London.
We noted at least 41 different investors putting money into the recruitment sector (including RecTech) in H1 alongside a number of undisclosed investors.
H2 predictions:
With the predicted GDP growth slowing, we can expect deal activity to reduce slightly in Q3 compared to the boom of February-April. With investment largely being poured into the more pandemic-resilient industries at the beginning of this year, it is expected that we will see some of the sectors that took a little longer to bounceback gaining a little more attention from investors, for example, hospitality recruitment - particularly once we see the outcome of the race to outperform post “freedom day”.
Key case studies:
Beamery raised £98.7m in funding in June 2021 for the purpose of investing in their recruitment CRM. Some smaller investments into RecTech also occurred in H1, for example Guinness Asset Management invested £5m into recruitment AI tool, Distributed and EmployApp who raised £1m from undisclosed investors. One of the most notable deals occurring in the staffing sector, outside of RecTech, is the completion of the management buy-out of Outsource UK, supported with a new finance facility of Close Brothers.
One to watch:
We’ve also seen some interesting investments, reflecting the current economy, into Recruitment-cross-Fintech sector businesses, largely centring around helping businesses to protect cashflow whilst also aiding the staffing sector, by providing a buy-now-pay later option for recruitment fees - for example, Playter Pay.
About me:
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Sources
https://www.recruiter.co.uk/news/2021/02/ma-deals-down-uk-recruitment-market-global-activity-falls
https://www.pwc.com/us/en/services/deals/industry-insights.html
https://www.boxington.com/insights/2021-ma-predictions/
https://platform.beauhurst.com/login?next=/
https://www.pinsentmasons.com/out-law/news/uk-ma-market-rebounds-from-coronavirus-crisis
