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  • Writer's pictureOliver Bruell

Private Equity Interest in the UK Recruitment Market

There has been a noticeable increase in private equity activity within the UK recruitment market over the last few years especially into the lower mid-market and this article will discuss some of the common themes that financial buyers consider when investing into the sector.


Most sector agnostic funds tend to adopt a thematic investment strategy when reviewing a recruitment asset, meaning they have a preference for value drivers such as strong management teams, a diverse client portfolio, efficient operational systems and a clear sector specialism. Furthermore, agencies specialising in white collar highly technical industries receive a far higher level of interest. For example, funds such as Palatine, NorthEdge and Orangewood private equity have all made recent acquisitions into specialists operating in the life science / medical technology subsectors over the past two years.


Recruitment is a service based industry which is heavily dependent on relationships held by key employees of the business. Without a strong ownership and second tier management team in place, an investor might doubt the future growth potential of the firm as well as questioning the ability to maintain existing earnings post-acquisition. Usually, the ownership has scaled the business organically until this point but requires institutional investment to assist in their second phase of growth before their eventual full exit, years down the line. The average investment period for a private equity fund is three to five years with the lowest acceptable return being 1.7%, typically for high volume firms. Usually private equity funds will look to “professionalise” a firm through operational improvements such as tech enablement and access to their data insights, assist with talent acquisition through the utilisation of their networks of C-Suite executives and finally “internationalise” the business through expansion into new geographies. They can also assist with a non-organic growth strategy if required.


Another value driver can be observed in the split of net fee income from the various types of personnel supply. Whilst funds can be enticed by the high margins and cash generative nature of firms that concentrate on permanent placements, these are often perceived as risky and less robust. On the other hand, agencies which generate a high percentage of NFI through interim contractors allow an investor to easily forecast future earnings. Additionally, they are viewed as more resilient during times of economic instability, for example an agency’s clients can cut their permanent staff and use contractors to fulfil their short-term requirements.


When assessing an investment opportunity, investors will always look for differentiators in which an agency can stand out from their competitors. This is typically achieved though the implementation of technology and possessing an efficient operational system. Agencies can optimise their staff’s productivity and effectiveness by assisting in the planning, organisation and supervision of their pipeline giving them an edge over competitors. However, more recently, we have observed agencies setting up “offshore offices” to focus on administrative tasks and candidate sourcing, whilst their “onshore office” focuses on client development. This not only has increased their consultants productivity but also created higher profit margins due to the savings of employing staff in countries which require a smaller remuneration package.


In conclusion, there are a multitude of factors which influence a private equity fund’s interest in a recruitment asset. Funds are estimated to be holding $1.96 trillion in dry powder and as asset prices begin to drop amidst the economic and geopolitical uncertainty, there is a strong case that private equity activity within the recruitment sector will return to pre - pandemic levels over the coming years.

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