The first half of 2023 has been an interesting period for the Recruitment sector, with many agencies experiencing much softer trading conditions. With the increased cost of raising debt finance and macro-economic factors affecting hiring trends / annual revenues, buyers have been less likely to transact in the short-term. The resilience of these agencies is expected to be analysed in the coming months, which will provide buyers with a better picture in assessing the true change in trading conditions.
As we review Q2, the skills shortage has still been present across the board, with healthcare being the obvious sector in need of personnel. On the other hand, the resilience of the contract technology sector during Q2 has been interesting to watch. Many Tech agencies have experienced a slowdown in recent months, especially in permanent & direct hire, although with mass tech layoffs, the labour supply is there. This combined with the fact that corporates continue to invest in technology has meant we’ve already began to see IT deals pick up during the quarter. Read below for Connect’s thoughts on the transactions seen in the Recruitment & Staffing sector during Q2.
Healthcare Staffing – Market Consolidation Continues
Healthcare transactions featured heavily last quarter and whilst we saw a drop off in the number of these deals happening in Q2, substantial market consolidation still occurred, particularly in the States. The 5th largest healthcare staffing firm in the US, Jackson Healthcare, acquired LRS Healthcare. This was a momentous deal given that LRS itself is ranked 25th largest, with plans to operate under the Jackson Healthcare parent company, already comprising 16 subsidiaries.
The magnitude of this deal reflects wider global trends happening in the Recruitment market, with a growing number of healthcare staffing agencies emerging to fulfil labour demand. For example, data published by the SIA highlighted 251 of the largest staffing firms in the States. Amongst the companies in this report, healthcare temporary staffing was the largest revenue segment (30%) in the list comprising 75 firms. This type of agency is reported to have generated $61.7billion in revenue for the US market in 2022. Rewinding a few years prior, healthcare agencies did not feature in these rankings. This highlights that the persistent shortage of healthcare personnel, and ageing demographic globally, is having a lasting impact on recruitment agency trends.
Activity also occurred closer to home in Europe, with World of Talents acquiring easyCare. As a market-entrance into Germany, the deal marked a significant milestone in World of Talents’ strategy, with plans for pan-European expansion, whilst strengthening expertise in the care sector. As a large Group already comprising 11 brands, World of Talents is on an aggressive acquisition strategy in the DACH region with plans to build a specialist European HR network. Focussed on shortage occupations and talent management, it is likely that we will see further M&A activity from this Netherlands headquartered agency.
Continued Private Equity Interest
As private equity data affirmed, there was increased buyer confidence in the UK recruitment sector during 2022. Of the 76 deals completed, 42% involved a financial sponsor or private equity backed trade buyer. Whilst this tailed off at the beginning of the year due to restrictions in cost of capital, Q2 has highlighted that private investors still have sufficient dry powder to deploy. We saw an uptick in PE activity for the Recruitment sector in transactions such as H.I.G Capital’s acquisition of Office People.
With over 9,000 staff internally, Office delivers personnel to the aviation, e-commerce, logistics and mobility / automotive. H.I.G. Capital’s interest in the European Staffing market reflects wider secular growth trends. Demographic changes will increase the need for temporary workforces as the baby boomer generation retires. The Managing Director of H.I.G. has expressed plans to build upon these trends, leveraging organic growth, add-on acquisitions and internationalisation to grow. Reference to the add-on strategy shows an increasingly popular approach which targets the mid-tier market. Financial sponsors are using their platform investments to make smaller add-on acquisitions, which facilitates continued growth through smaller enterprises.
We also saw ALKU secure a majority investment from New Mountain Capital, alongside reinvestment from FFL Partners and WestView Capital Partners. The transaction is expected to help ALKU exceed $1billion in revenue across the next few years by combining expertise in human capital management, Life Sciences, and other key markets.
As well as the reinvestment into ALKU, WestView Capital Partners also completed on a minority purchase of Triple Crown Consulting. Focussed on middle-market growth companies, Triple Crown was an ideal target for Westview given its ranking in the SIA’s fastest-growing US firms list. Focussed on the semiconductor and silicon engineering market, the partnership is set to accelerate Triple Crown’s position as a market leader where there is strong demand for such niche engineering talent.
North America – Still Attractive to Overseas Buyers
As the largest staffing market globally, generating $177billion annually, the United States continued to be attractive to European acquirers. This was most evident in Q2 through the deal completed between French buyer, Proman, and PeopleShare. As the 4th largest staffing firm in France, Proman has been present in the US since 2018 and has grown both organically and non-organically. Generating 160million USD in turnover, the addition of PeopleShare to the Group is set to accelerate Proman’s footprint in the States substantially.
Interestingly, the UK was also attractive to buyers in the States, as seen in Atrium’s majority purchase of Gibbs Hybrid, a London headquartered IT firm. Atrium ranks within the largest US staffing firms according to SIA, with the recent acquisition facilitating expansion into the UK, Ireland, Poland and Luxembourg. Despite such a high saturation of trading recruitment agencies, this transaction suggests the UK continues to be attractive as a market to overseas acquirers. Additionally, BGSF increased its reach overseas through the completion of Arroyo Consulting. Whilst headquartered in the US, the target was expected to add offshore operations in India for BGSF, with locations also in South America.
It will be interesting to see what markets continue to be attractive in Q3, whilst also considering which Recruitment verticals will cover the largest segment given that Q1 and Q2 of this year have been so different.