2025 Rec-View

2025 was another challenging year for the global recruitment and staffing industry, marked by ongoing macroeconomic uncertainty, subdued hiring confidence, and heightened sensitivity around taxation and policy. In the UK, the increase in National Insurance contributions added further pressure to employment costs, reinforcing employer caution and slowing hiring decisions across both permanent and contingent markets.

Against this backdrop, M&A activity remained modest but consistent, as buyers adopted a more selective approach to capital deployment. Activity continued throughout the year, underpinned by consolidation strategies and sustained interest in specialist and resilient segments of the market.

A More Selective Approach to Capital Deployment

An overarching theme in 2025 was private equity firms favouring bolt-on acquisitions for existing portfolio companies over new platform investments. Rather than signalling a lack of appetite for M&A, this approach reflects sponsors’ desire to continue deploying capital while adopting a more risk-averse position. By doubling down on existing portfolio companies, financial sponsors focused on scaling proven assets, using bolt-on's to add depth, capability, and geographic reach. This strategy was evident among large PE-backed operators such as Morson Group (Onex Partners) and GHR Healthcare (MidOcean Partners), both of which executed targeted bolt-on acquisitions during the year to strengthen their core staffing platforms. This underscores a clear preference for value creation through consolidation and platform enhancement, rather than new platform formation in a more cautious market environment.

Technology as a Structural Driver of Recruitment M&A

Technology continued to play a central role throughout 2025, with activity driven both by HR technology providers strengthening their core offerings through the acquisition of complementary software and platforms, and by traditional recruitment firms acquiring technology capabilities. Consolidation in the market came from Zvoove (LEA Partners), which continued its disciplined buy-and-build strategy centered on European HR SaaS, and HR Path (Ardian), which pursued a similar approach through acquisitions spanning HR technology, HRIS implementation, and technology-enabled HR services. Together, these transactions highlight why platform and SaaS-led assets continue to attract M&A interest, offering predictable, contracted and sticky revenues that are not present in traditional recruitment firms.

Capital Flowing to Specialist and Defensive Talent Verticals

As the recruitment market continues to mature, specialist staffing firms are increasingly viewed as more attractive M&A targets than broad, generalist agencies. Businesses that clearly own their niche benefit from stronger pricing power, higher margins, and greater earnings visibility, supporting more resilient valuation outcomes. This trend was evident in 2025, with UK-listed Gattaca acquiring Infosec People to expand into cybersecurity, one of the most talent-scarce and defensible sub-verticals within the technology ecosystem. That said, 2025 also highlighted divergence within specialist markets. In the UK healthcare market, budget constraints and regulatory scrutiny weighed on activity despite underlying demand, while parts of the education sector faced similar pressure from funding and procurement constraints. As a result, buyer appetite has become increasingly selective, favouring specialist platforms with clear positioning and limited exposure to short-term funding pressures.

Listed Recruitment Companies: Cautious Stabilisation, Not Recovery

More broadly, commentary from listed recruitment companies in 2025 provides useful context on the market backdrop. Trading updates across the year reinforced a cautious but increasingly differentiated outlook into 2026, with management teams pointing to stabilisation in end-market hiring rather than a near-term rebound. SThree and Brunel both characterised 2026 as the earliest point at which a more meaningful recovery could emerge, citing prolonged softness in client decision-making alongside a continued focus on cost discipline, productivity, and selective investment. Among the largest market players, Randstad, Adecco, and ManpowerGroup highlighted muted demand across most geographies, partially offset by pockets of resilience in engineering, life sciences, and outsourcing-led solutions, with an emphasis on pricing discipline and operational flexibility as volumes normalise. Within the professional recruitment segment, PageGroup and Hays continued to report subdued permanent hiring conditions, particularly across the UK and Europe, although early signs of improving confidence and pipeline development were noted.

Overall, sector commentary suggests that 2026 is increasingly viewed as a transition year rather than a cyclical inflection point, with performance likely to be driven more by market mix, cost actions, and execution than by a broad-based recovery in hiring demand.

Resilience of Contract and Contingent Workforce Models

While recruitment businesses do not benefit from the same subscription-based revenue profile as SaaS platforms, contract and contingent staffing continues to offer greater earnings visibility than permanent recruitment. From a buyer’s perspective, the recurring nature of contract placements - where revenue is generated over the life of an assignment and often renewed across multiple engagements - creates a more predictable and lower-risk income profile. By contrast, permanent recruitment remains inherently cyclical and transactional, with revenue realised at the point of placement and limited forward visibility. This dynamic is reflected in recent industry data, with the latest KPMG/REC Report on Jobs showing permanent staff appointments continuing to decline, while temporary billings proved relatively more resilient as employers remained cautious about long-term hiring commitments. In this environment, earnings durability and cash flow consistency have become increasingly important to acquirers, and as a result, recruitment businesses with a meaningful contract staffing offering continue to attract heightened M&A interest in the current market.

Employee Ownership Trusts (EOTs)

While traditional trade and private equity-led transactions continued to dominate recruitment M&A in 2025, employee ownership remained an alternative succession route for a small number of firms. Building on a key theme from last year’s Rec-View, EOTs continued to appeal to owners seeking cultural continuity, employee alignment, and a clear succession pathway. A limited number of transactions were announced ahead of the UK Budget on Wednesday 26 November, including C4S Search and Mech Tech Professionals, reflecting a focus on fiscal certainty. Following the Budget, however, the relative attractiveness of the EOT structure has shifted. Reductions in associated tax relief mean the route is now materially less lucrative for selling shareholders, prompting some owners to reassess their options. In a market where valuations for high-quality recruitment assets remain supported, this may encourage greater engagement with traditional trade or private equity-backed sale processes in 2026. As policy emphasis continues to move toward demonstrable employee benefit rather than tax efficiency, EOTs are expected to remain a selective ownership route rather than a core driver of recruitment M&A activity.

Summary

2025 has been another challenging year for much of the recruitment sector, reflected in the performance of listed companies and continued caution among employers. While conditions remained difficult, M&A activity stayed resilient as buyers adapted to a more selective and disciplined deal environment. Looking ahead to 2026, expectations remain measured. Rather than a sharp rebound, most market participants view the year as one of stabilisation, with hiring confidence still fragile and decision-making timelines extended.

That said, deal activity is expected to continue, particularly where businesses offer clear specialisation, predictable revenues, or technology-enabled delivery models. Contract and contingent staffing is likely to remain more resilient than permanent recruitment, and as the market gradually normalises, execution, cost control, and clarity of positioning will remain critical differentiators.