Recruitment Investment and M&A Report, H2 2021
A look back at H1 2021:
H1 of 2021 had an interesting start; the unpredictability of the pandemic, the future implications of Brexit, but also the Spring boom in GDP growth. RecTech was unsurprisingly a standout in deal activity, considering our reliance on it over the pandemic and the shift towards working from home. We saw a move towards deal-activity becoming less London-centric with 45% of activity being dominated by businesses based outside of London.
An overview of H2 2021:
Well, my prediction that deal activity would slow with the reduction in GDP growth post-Spring was entirely wrong. 2021 was a knock-out for the recruitment sector. GDP continued to grow, albeit at a slightly lower rate, but took us beyond pre-pandemic levels for the first time in November. Deal activity in the UK staffing market rose by 42% compared with the year prior, and reached the highest peak in 13 years. It was naturally no coincidence that it was mirrored by the number of UK job vacancies nearly doubling in an 8 month period.
H2 2021 was an intriguing 6 months. The Great Resignation (always capitalised, for dramatic effect), the full impact of Brexit beginning to reveal itself, the phasing out of the furlough scheme, the revelation that - yes, flexible working is here to stay in the recruitment sector.
The UK dominated recruitment M&A activity, with the vast majority of deals involving a UK target and slightly less than that involving a UK buyer. London made up the majority of UK activity, with 64% of deals taking place in the capital - up 9% from H1.
RecTech continued to command a lot of the marketplace - making up over a quarter of deals, which accounts for the large percentage of VC investment into the staffing sector. Healthcare and social care recruitment was the 2nd biggest recipient of investment, likely spurred on by the pandemic and the ever-increasing backlog in the NHS. This was followed closely by tech and digital recruitment businesses, a consistently attractive sector for investors, but even more so in H2. Amongst recruitment businesses, we saw a continued trend of private equity and trade sales being the most popular form of divestments - with PE being the slightly more favoured choice. It was also a great time for multiples, increasing in the latter half of the year, although that is expected to stabilise into 2022.
Predictions for H1 2021:
Whilst M&A and investment in the recruitment market seems to be showing no signs of slowing down, it would be prudent to expect it to peter out slightly. How the cost of living crisis, energy price hikes and tax implications will affect the recruitment market is still to be confirmed. We saw a notable increase in deal activity for niche specialists in the recruitment market, and it’s predicted that this will only grow further as the market increasingly favours the super-specialists.
Key case studies:
We saw a number of larger recruitment groups acquiring fast-growth, high potential and profitable SMEs. Some key examples of that are Morson Group acquiring Cornwallis Elt, Marlin Green was acquired by Inflexxion-backed K2 Partnering Solutions, and Challenge-trg bought PMP recruitment from Twenty20 capital - creating the UK’s largest blue collar recruiter. Recently it’s seemed like if you’re a RecTech youwillinevitably be acquired by Bullhorn, and that doesn’t seem to be stopping as they bought Cube19, after partnering with them for 9 years. If you’re a RecTech and you’re not being acquired by Bullhorn, then you’re getting VC investment. Hinterview secured £3m in Series A, lead by Calculus Capital, bringing their total raised to date to £6m. As mentioned above, it was a great time for medical recruitment - Agathos, a fund that typically invests anywhere between £3m-£10m, backed the MBO of Hunter Healthcare. PE-backed MBOs were definitely having a moment in H2 last year, with NorthEdge backing Meet Recruitment’s MBO. We also saw interest from private equity in other areas of the recruitment market, with Graphite acquiring Bristol-based Opus Talent Solutions.
About me:
If you're preparing for M&A, you need a great Finance Director or CFO. Brace yourself for a quick plug. Funnily enough, I specialise in placing FDs and CFOs exclusively into the recruitment sector! To learn a little about the market at the moment, feel free to reach out:
Sources:
https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/november2021
https://www.recruiter.co.uk/news/2022/02/bdo-report-reveals-flurry-ma-deals-uk-recruitment-sector
https://www.city.ac.uk/news-and-events/news/2022/01/seven-m-and-a-trends-to-look-out-for-in-2022#
https://www.grantthornton.co.uk/insights/recruitment-ma-and-trends-review-q3-2021/
https://www.grantthornton.co.uk/insights/recruitment-ma-and-trends-review-q3-2021/
https://www.privateequitywire.co.uk/2021/09/09/305903/northedge-invests-meet
https://www.agathos.com/agathos-backs-management-buy-out-of-hunter-healthcare/
graphitecapital.com/sites/default/files/Graphite%20-%20Opus%20FINAL.pdf
