Q2 2024 Rec-View

The second quarter of the year has continued to show a similar level of M&A activity in the Staffing markets demonstrated in Q1. As everyone continues to predict when the accelerated surge in M&A activity may come, the number of Recruitment transactions in H1 this year has remained relatively consistent. With most perceiving the current landscape as limiting in terms of deal flow, there is pressure for strategics and financial sponsors to transact. Periods of downturn lead to pent-up demand and supply, particularly for the private equity universe. There is also a growing desire from corporates to utilise M&A to accelerate growth and adapt their businesses during times of dynamic change. This is particularly evident in Recruitment agencies which are highly impacted during periods of economic downturn, given the cyclicality of the sector.

Agencies have begun incorporating AI to transform their business models and also made acquisitions to access new service lines to diversify their revenue streams. Examples within Staffing verticals have included the addition of ancillary services to traditional Education staffing businesses, accessing CQC licenses within Healthcare, as well as diversifying into consulting within IT staffing. This is just to name a few, keep reading for Connect’s round-up on key themes and Staffing deals last quarter.

Digital Integration via Acquisition

Acquisitions with a technology focus remained prevalent last quarter, continuing to be the most transacted category in line with Q1. In recent years, integrating technology into daily recruitment operations has become a key priority for business owners aiming to streamline processes and enhance efficiency.

The consistent interest in recruitment technology platforms via acquisition shows how owners are seeking to adapt in the fast-changing landscape to stay agile and competitive.

This was notable in Zvoove Group’s April acquisition of VMS provider DirectSkills, marking their entry into the French market. The target company held clients such as Auchan, Daher, and GEODIS, and was managing c300k temporary workers annually to process around €2 billion in payroll through the platform. DirectSkills' software, featuring self-billing and self-invoicing, digitises and automates key processes between corporate customers and temporary staffing suppliers, making this acquisition an excellent addition to Zvoove’s current tech stack. With seven strategic acquisitions made in the past 18 months, Zvoove Group is aiming to completely digitise its solutions for the temporary staffing market, by creating a cutting-edge product portfolio within front-to-back seamless software integrations.

In addition, whilst generative AI is still at relatively early stages, it is already a dominant force in Staffing transactions due to the potential for massive cost efficiencies, enabling new revenue streams, opening new channels to customers, and ultimately enhancing value proposition. For example, Multiverse’s acquisition of Searchlight provided access to a talent intelligence platform utilising AI to screen candidates, allowing recruiters to automate the process of allocating top hires at the start of the hiring cycle. Searchlight’s proprietary AI models combined with Multiverse’s rich data set is expected to offer unparalleled opportunity in identifying top talent.

Other acquisitions relating to candidate screening technology included Accurate Background’s investment into Orange Tree Employment Screening. Enabled by its propriety technology, OTES provides background screening, drug testing, and occupational health services, offering seamless solutions which allows clients to focus on their business while empowering them to fill their open positions.??

Bullhorn related acquisitions included Staffing Future’s investment into 3DIQ, which offers a product integrating with the Bullhorn’s ATS to automate how staffing firms submit candidates to clients. Additionally, Kyloe Partners, a provider of Bullhorn integration solutions, announced the acquisition of Squire which is an AI powered conversational intelligence software.

Sizeable Deals

M&A activity in the Mid-to-Upper segment of the market last quarter continued to mirror the trends of Q1, reflecting some signs of optimism in the current economic landscape. In the US, Atlantic International acquired Lyneer Staffing Solutions, the 39th largest staffing firm in the US. Atlantic International was created to capitalise on the large and fragmented outsourced services and staffing market. CEO Jeffrey Jagid described Lyneer as the perfect platform to leverage their M&A strategy to diversify revenue streams and improve margins. Generating $400m in revenue (FY2023) as a standalone, the acquisition is expected to propel Atlantic’s growth in outsourced services across medical, IT and Engineering staffing.

We also saw Cognizant Technology Solutions acquire Belcan, the 10th largest engineering staffing firm in the US. Deal value was disclosed at $1.29 billion, including a $1.19 billion in cash and 1.47 million in shares of stock. In terms of size, it has been rumoured that Belcan traded at $100m EBITDA, indicating a multiple paid at 10x on close. The acquisition is expected to add more than $800 million to Cognizant’s annualised revenues, enabling significant market penetration into the US ER&D market.

Accessing Niche Verticals

With Belcan operating in aerospace and defense, the transaction is expected to significantly strengthen Cognizant’s position as a market leader in these verticals.

This reflects a growing trend among agencies to tap into niche specialisations within staffing, driven by healthier profit margins and increased demand for specialised skill sets amid labour shortages. The addition of Belcan will establish impressive synergies with Belcan’s deep engineering capabilities expected to be complimented by Cognizant’s scale. Likewise, Cognizant’s digital engineering expertise is predicted to provide Belcan’s blue-chip client roster access to advanced AI, cloud and data technologies.

Another example of niche staffing specialisms included Oxford Global Resource’s acquisition of Linksap Europe, a leading provider of SAP? staffing services. The acquisition serves as a strategic expansion of existing service lines into target European markets and customer channels. Oxford Global’s offering is focussed on technology and life sciences engagement primarily in the US, meaning the acquisition of Linksap is expected to strengthen its ERP service line supplementing SAP? delivery and customer relationships. This theme is not in isolation as we have seen various deals with agencies seeking to specialise in ERP implementation, digital transformation, Cloud, and Cyber, as opposed to generalist IT staffing. In addition, it is encouraging to see US interest in the European market given that profit margins in Staffing are typically lower, indicating signs of optimism, sector growth and market recovery.

Private Equity Interest

Last quarter we saw further private equity interest in the Recruitment sector, most notable in CVC Capital Partners’ investment into World of Talents (WoTs). Previous private equity partner, Baltisse, remains onboard with majority shares divested to CVC.

Focussed on the Engineering, Healthcare and IT segments, the organisation operates in high margin staffing verticals, having generated impressive revenue figures of €360m and €50m EBITDA. Investment from CVC is expected to facilitate WoTs’ ambitious growth strategy in becoming the leading pan-European network for bottleneck professions. With increased capital to deploy and scope to explore new geographies, it will be interesting to follow the developments of WoTs’ acquisition trail.

We saw another transaction from PE backed, Compass Recruitment Solutions (CRS), with the acquisition of executive search firm Carter Schwartz. This came after Cow Corner’s (CC’s) investment into CRS last quarter, with their involvement expected to significantly accelerate organic and inorganic growth to build scale in Health & Social Care. CRS is a market-leader in its niche of health & social care retained search, operating five brands to service the skills shortage in Social Care, Private Healthcare, Healthcare Executive, Drug Development and Medical Communications markets. CRS has made two acquisitions now, one prior to CC’s investment and one post transaction so we will be keeping tabs on further acquisition announcements if there might be additional capital to deploy.

Conclusion

Looking forward to Staffing deal volumes expected for H2, dealmakers might argue that the clarity of a? new UK Government might improve stability and activity following a relatively slow first half to the year.

With interest rates expected to decline and inflation somewhat under control, improved market conditions create a more optimistic outlook on the currently subdued M&A environment. While the incoming Labour government has caused some uncertainty amongst business owners in the Recruitment sector, there is hope that it will bring some stability to the economy.. Policy changes from the Labour government are predicted to have a heightened focus on investment into green energy, infrastructure projects and more resources to reduce NHS waiting times. As a result, it will be interesting to see if there will be increased activity in M&A staffing for the renewables, construction and healthcare staffing sectors.