Whilst 2023 can now officially be considered in full swing as we step into February, long past the Happy New Year’s and finally through what always feels the slowest month of the year, we reflect on what the deal making landscape brought us in 2022.
After a record-breaking year for M&A in 2021, matching deal volume for 2022 was always going to be a challenge even amidst the most favourable of economic climates. As we know, 2022 provided a much less supportive backdrop with escalating geopolitical tensions, rampant inflation, tightened lending policy, supply chain disruption and the longstanding Covid-19 aftermath. This filtered through to deal volumes which was substantially lower than the 65,000 closed in 2021.
Although transactions notably declined in comparison to ‘21, it would be misleading to create a negative narrative of this given that 2022 activity actually surpassed pre-pandemic levels. This reinforces 2021 as a record year, which will inevitably look underwhelming when positioned against other M&A volumes seen in previous or subsequent years. But how did the recruitment sector hold up in the statistics for 2022?
Q1 Recruitment – Disposal of the Light Industrial Division
A key trend we saw emerge in Q1 deals was a change in the core strategy for many agencies operating within the light industrial space.
This was notable in January when Impellam Group announced the sale of Corestaff, its light industrial brand, to SwipeJobs for a disclosed sum of $19m. The transaction highlighted a strategic review of growth plans for Impellam Group, with Julia Robertson (CEO) commenting that the disposal of Corestaff will allow the group to accelerate investments into virtuosity, technology, digital and innovation across the existing portfolio.
Towards the end of Q1, BGSF also announced the sale of its light industrial arm to leading job marketplace, JobandTalent. Beginning as a workforce solutions provider in 2007, light industrial placements accounted for 100% of BGSF’s revenue for several years until the group began to diversify into professional and real estate segments. The light industrial division, InStaff, continued to be successful throughout, with a 96% client retention rate in 2021 for all on-sites. This demonstrated that BGSF’s disposal was simply in pursuit of its new growth strategy to focus on higher margin/white collar business segments. Strategic divesture will allow BGSF to deploy more capital into managed services and high-end consulting solutions, whilst J&T will be able to integrate its digital platform to further strengthen its existing position in the logistics and warehousing sector. The industrial divesture of Q1 in 2022 has also continued as a trend through to ’23, with Impellam Group selling its light industrial arm, Blue Arrow, in January of this year.
These deals highlight agencies seeking to dispose of what initially was their ‘bread & butter’, whilst light industrial recruitment was largely the foundation for their success, they are seeking higher margin work to remain agile in the marketplace. Nevertheless, other deals in the quarter also demonstrated agencies wishing to strengthen their existing position in the light industrial space, with Ascend Staffing completing its acquisition of WorkStaffing. The transaction enabled AS to accelerate its geographic footprint into 45 branches across 15 states and provide opportunities to scale on its existing expertise in the light industrial, non-clinical hospital, warehousing, and clerical industries.
Q2 Recruitment – Light Industrial Transactions Continue
As is typical in M&A, when some agencies will look at strategic divesture to remain agile in the marketplace, others will look to capitalise on this as an opportunity to secure further market share in a given vertical. This was reinforced through much of Q2 where we saw an increased volume of light industrial transactions as the most prevalent vertical for deals closed.
Ascend Staffing continued to expand its portfolio with the acquisition of Apprentice Personnel, again adding new locations including Colorado and Kansas which would further consolidate its footprint across North America.
Additionally, there was substantial activity in the UK light industrial space, with Berry Recruitment Group acquiring First Recruitment Services to add £6million to the total group revenue, valued at £68.6million in the previous year. The Jarrell Group also continued to expand on its buy & build strategy through the acquisitions of KHS Personnel and its sister company, Bridge Recruitment. With a core focus in the industrial sector, the acquisitions were part of the group’s strategic growth plans in the East Midlands and North Yorkshire.
Q3 Recruitment – Renewed Private Equity Interest
A key theme we saw in this quarter was renewed private equity interest, with PE deals accounting for 58% of total recruitment transactions completed in Q3 of 2022.
This was most notable in the four acquisitions closed by House of HR in September, which followed Bain Capital’s majority investment in June. In a PE deal which included the sale of 55% of shares for an estimated £3billion, the group’s aggressive buy & build strategy was apparent in the September acquisitions which included StaffMe, LED Personalvaermittlung, FID and Business People. Following Bain Capital’s investment, the acquisitions highlight sizeable non-organic growth plans to dominate the European staffing market, with the targets trading in France, Germany and the Netherlands. With 14 acquisitions completed to date, Rika Coppins (CEO) announced that both organic and non-organic growth in DACH countries is set to continue for House of HR so it will be interesting to see what deals may come to fruition in 2023.
Additional private equity deals included Palatine acquiring a majority stake in Skills Alliance, which is a UK based work solutions provider specialising in the life sciences & medical space. Working on a retained basis for some of the largest biotech firms around the world, the company reports an annual NFI of £15 million and has doubled in size in the last 12 months, with Palatine holding two other life science businesses in its portfolio meaning there are clear synergies for growth in this exciting new partnership.
Q3 also saw Phaidon International’s previous sponsor, Quilvest Capital Partners, exit the business with new investment secured by a consortium, led by funds which were managed by Further Global. Further Global’s investment enabled Phaidon to pursue its ambitious growth plans for the rest of 2022, with the business scaling to 1.4k staff and 15 offices around the world.
Q4 Recruitment – IT Continues Momentum
On analysis of the recruitment data collated throughout 2022, IT has continued to feature as one of the most attractive sectors from an M&A perspective. Excluding Q2, IT finished top for most of the year, with Q4 no exception as c12 transactions completed in the press.
Whilst the IT sector’s attractiveness is not a newfound trend amongst recruitment agency buyers, it is perhaps surprising that the vertical has managed to retain its position amidst the substantial tech layoffs which have dominated headlines in the last few months. The redundancies which have been made amongst the leading tech companies across Amazon, Microsoft, Google and Meta have reportedly laid off more than 150,000 workers collectively. Increased consumer spending during the Pandemic and record revenues naturally led to hiring sprees which have now reversed following the need to reduce overheads in line with slowed economic growth. Interestingly, Forbes reported that roles most affected were across HR departments, accounting for 28% of all layoffs. With HR departments seeming to be the first target, this is perhaps indicative of recruitment/onboarding being less of a priority in the current climate. Or alternatively, is it because a lot of these functions are now becoming automated through tech integration?
Either way, it’s interesting to see how this will come to affect the favourability of IT as a recruitment investment opportunity. As we have seen from the deals closed in 2022, the slowdown of tech hires hasn’t yet filtered through to M&A trends for buyers targeting this space. Much like the record job postings and candidate shortages amidst a global recession, these conflicting factors usually skew predictions in such an unusual climate. Similarly, will there still be a large volume of deals against the backdrop of substantial tech layoffs? This is certainly something we will have to watch play out.
As is the nature of M&A, when a slowdown occurs that impacts both the operational business of acquirers and targets, transactions won’t necessarily grind to a halt during these downturns. Instead, those looking to take advantage of opportunities are likely to be the ones coming out on top so let’s see what 2023 brings for recruitment & staffing!