..for UK recruitment market, despite drop in transactions in 2023 - BDO

• The number of M&A deals in the UK recruitment sector dropped by 28% in 2023, with a total of 70 deals completed

• Despite this, there was sustained investment activity last year, with private equity accounting for 34% of all UK deals.

A ‘flurry' of larger transactions in the first quarter of 2024 will give cause for optimism for the UK recruitment sector, according to accountancy and business advisory firm BDO. This is despite a drop in deals in 2023.

Last year, a total of 70 deals were completed. This was down by 28% compared to the previous year. However, set against a challenging economic backdrop, the recruitment M&A market remained resilient as deal activity outperformed other parts of the wider UK M&A deals market.

In the first quarter of 2024, the market has already seen a number of larger transactions, providing early indications that the market is starting to return. These include: HeadFirst Group's offer to acquire Impellam Group for a reported £483.2 million; and GI Group completing the €130 million acquisition of Kelly's European staffing business.

The BDO Recruitment M&A Annual Report 2024 shows that the recruitment platform/software sector continues to be the strongest performer for the third year in a row, representing nearly a third of total UK transactions (2023: 21 deals). This was followed by IT and healthcare, with M&A activity where AI is at the heart of the transaction also on the increase. Recent deals involving AI include: AI Recruitment Technologies Ltd., trading as Horsefly; and Included.AI (now Clu), which received funding led by Trilogy Equity Partners.

Once again, private equity continued to play a pivotal role in the recruitment M&A market, accounting for a third (34%) of UK transactions in 2023. This is an increase from 25% in 2021, but down from 2022 levels of 39%.

James Fieldhouse, M&A Partner at BDO LLP, said:

"2023 had been a challenging year for many recruitment companies. The UK market has unfortunately suffered from persistently high levels of inflation, which has assisted with the low levels of growth being experienced and a resultant lack of confidence and reduced hiring from businesses during the period.

"However, despite these challenging economic trading conditions, transaction levels have continued at a sustained level during 2023, with a flurry of larger transactions kicking 2024 off on a positive note. This is in stark contrast to other parts of the wider M&A deals market which have been significantly impacted during 2023."

There were a number of standout deals in 2023, including: IPE Ventures' acquisition of Taskmaster Resources Limited; the sale of Vercida Consulting.Com Limited to Hays plc; Pro Global Holding's acquisition of Propel Consult Limited; Impellam Group sale of its regional staffing businesses and healthcare staffing business (Medacs Global Group) to Twenty 20 Capital; and two acquisitions by BGF-backed Operam Education, which bookended the year - Bridge Education And Training Limited and Provision Recruitment Ltd.

Fieldhouse commented:

"It's clear that a number of recruitment businesses continue to face challenging economic conditions, with many alongside the major UK plc agencies recently making significant cuts to staffing levels. However, we remain positive about the upcoming year. With inflation now seemingly under (more) control and murmurings of potential reductions in the Bank of England base rates hopefully coming to fruition later in the year, we're hopeful that this will promote growth in the sector and that this renewed optimism will translate into deal activity."

The BDO report highlighted that the UK recruitment market has shown positive signs of growth in 2023, with revenues recorded at £17.9 billion, above pre-pandemic levels. Despite a slower rate of growth than previously reported, the overall recruitment market outlook remains optimistic, with annual compound growth of 5.4% forecast over the next seven years.