Surge in recruitment deals points to increased activity in 2021

• Despite the impact of the global pandemic, transaction volumes in the UK recruitment market ended the year with just four fewer deals than 2019 levels
• Globally, deal volumes were down 20% compared to 2019.

Q4 deal volumes in the UK recruitment sector returned to levels seen pre-pandemic, outstripping transactions in the same period of 2019.

Despite the impact of COVID-19, 21 deals were completed in the sector during 2020 – ten of which were in the last three months of the year, mirroring activity seen in January 2020. There were a number of deals in the North West, including the MBO of Venturi – a Manchester IT recruitment business – and the merger of Fircroft Group and Altrincham-based NES Global Talent. In total, there were just four fewer deals than 2019 levels, generating significant momentum for the year ahead.

The annual BDO M&A Review: Recruitment report shows a number of resilient sectors that demonstrated strong levels of deal activity over the last 12 months. These include global healthcare recruitment, with deals up by 50%, and recruitment platforms and software, which accounted for 27% of all activity.

Once again, there has been a sustained level of investment with private equity continuing to play an active role in UK recruitment deals, accounting for a third of all transactions in 2020. This further demonstrates the growing importance of private equity within the overall transaction environment, with the availability of liquidity being a distinct difference to previous recessions.

James Fieldhouse, M&A Managing Director at BDO LLP, said: “The global pandemic has had a profound impact upon the M&A recruitment landscape – both in the UK and globally. However, what is apparent is how resilient the market has been, with clear signs of recovery during the latter half of the year. In fact, the strength and speed of recovery is such that overall transactions volumes in the UK recruitment market ended the year almost in line with 2019 levels.”

The BDO report showed that, despite a recovery in deal activity, the COVID-19 outbreak is expected to result in a sharp drop (35%) in annual revenue for the UK recruitment sector in 2020 to £9.2bn, with demand affected particularly in areas like hospitality and tourism. Growth for the next five years is forecast at 6.6% – a lower rate than in previous years, and growing from a lower base given the economic recession.

Fieldhouse added: “The next 12 months is a particularly tricky period to predict, given the ongoing uncertainty caused by the global pandemic, the effects of the most recent lockdown in early 2021, as well as Brexit. The anticipated potential changes to rules around UK capital gains tax have also been an influence driving recent deal volumes generally, although this has to be balanced with the switching off of Government support which is likely to impact adversely upon unemployment. Following the surge in deals towards the end of 2020, we hope for increased deal activity during 2021, and the roll-out of a vaccine certainly gives us reason to be hopeful.”

The BDO FTSE Recruitment Index fell to a low of over 50% in 2020, but recovered to finish 16% down compared to the start of the year. Over the previous six years, the BDO Recruitment FTSE has consistently outperformed the wider market in terms of capital. However, it has taken a significant hit in the post COVID-19 environment.