Q3 2024 Rec-View

Q3 saw an uptick in M&A activity within the Recruitment and Staffing industry, signalling the slow release of pent-up demand for transactions. Some clear trends emerged, such as a propensity to use acquisitions to integrate new technologies and software. This forms part of a wider movement of agencies emphasising capability expansion to offer more rounded, end-to-end services. In addition, the demand for niche verticals in Q2 remained influential on deal flow, including a life science acquisition that Connect Corporate Finance assisted with. Moreover, we observed notable activity in the education recruitment space, indicating high current interest while pointing to potential areas of forthcoming demand within the sub-verticals of this space.

Software Platforms

Integrating software via acquisition continued to be a prominent vertical within recruitment transactions, forming 26% of our tracked transactions (See Figure 1). This follows a similar trend to Q2. Below is an initial snapshot across 5 software recruitment transactions this quarter:

? ZipRecruiter acquires Breakroom

? Zvoove Acquires Freematica

? Access Group acquires Onboarded

? Avionté acquires AkkenCloud

? Assessio Acquires Wisnio

The internal integration in ZipRecruiter, a US based employment market actively connecting retail and hospitality positions, announced the acquisition of UK based Breakroom, a provider of employer reviews and job marketplace capabilities. Breakroom’s outlook on changing the ratings and data collection system appealed to the US ZipRecruiter, who are looking to introduce the platform to the US market.

Zvoove’s acquisition of Freematica, a Spanish provider of ERP staffing software, will bolster their market appeal and presence within both Europe and LATAM. Zvoove’s commitment to retaining all Freematica products and staff will ensure a smooth post integration plan.

The UK-based Access Group which provides software management acquired Australian headquartered Onboarded and smartAI to ease the admin burden on recruitment consultant professionals and streamline their onboarding process offering. This deal follows a steady growth acquisition plan from Access Group, who snapped up Elay in May to further their multi-channel engagement software and CRM platforms.

Avionté also joined other staffing providers in improving their end-to-end service capabilities with the acquisition of AkkenCloud. This deal closed at the end of August, which as SIA technology research director noted is strong ‘evidence of the ongoing convergence in the staffing technology space’.

Lastly, the Pollen Street Capital backed Assessio acquired Wisnio, a provider of talent assessment software solutions targeting the growing niche of PE executive search markets. This acquisition takes direct aim at occupying Wisnio’s innovative technology and generative AI arm, which are trusted by PE and executive search firms in the UK and over in the US. This strategic acquisition will accelerate Assessio’s standing in the PE executive search space and develop their ongoing strategy to provide ‘innovation in the HR tech space’, as highlighted by Anastasia Kovaleva – Partner at Pollen Street Capital.

Continued Demand for Specialist Agencies

The demand for agencies specialising in niche verticals continues to be a catalyst for deal flow, with considerable value being placed on the associated deep sector knowledge and robust profit margins. These agencies offer attractive investment opportunities to investors seeking entrance to a niche market, as well as incumbents looking to expand their service capabilities or geographical footprint with bolt-on acquisitions.

Exemplifying the latter, Connect Corporate Finance assisted Barrington James, an international leader in Life Science Recruitment, with their acquisition of S3 Science Recruitment, experts in drug discovery and medical research. The deal aims to provide Barrington James with a more comprehensive range of client-service capabilities, with particular focus on integrating S3’s pre-clinical specialisation. Expertise in industries like Life Sciences, with sustained talent deficits and growing demand, will continue to be a valuable commodity in the recruiting sector and drive deal flow.

Education Continues to Pique Interest

Education recruitment is another specialism that has seen plentiful transactions, comprising 6% of our tracked deals (See Figure 1), with geographical expansion often being a driving factor. Swedish supply education app Humly acquired Future Education, a London-based supply agency. This is a continuation of their strategy to enter local markets via acquisitions, after five successful transactions across the North, South, and Midlands since 2021. Accordingly to Humly they are hoping that this deal will earn them a stake of the ￡300 million per annum London supply market.

In another deal aiming to establish presence in London, Operam Education Group acquired Horizon Teachers, an education recruitment agency based in the capital. This is the eighth acquisition of Operam’s buy and build spree and represents their first foray into the lucrative London and Southeast markets.

However, interest in education agencies has not been limited to trade buyers. LDC, the private equity arm of Lloyds Banking Group, exited their investment in The Edwin Group, a Newcastle based education services provider, to New York-based education investor Quad Partners. The Edwin Group experienced significant growth through a series of acquisitions and expansions under LDC, opening nine new locations and developing partnerships with 4,500 schools. Quad Partners looks to sustain this growth through broadening The Edwin Group support for schools to address the struggling teacher recruitment and retention processes.

Overall, a clear appetite for investments into the education recruitment space has emerged. Moreover, we are beginning to see demand for sub-sectors of this vertical. One growing area of interest lies in the supply of trained mental health professionals, such as cognitive behavioural therapy (CBT) practitioners. The need for education providers to offer mental health services is becoming increasingly important in today’s world, placing emphasis on recruiters to add this sub-service to their repertoire. While there is burgeoning demand in the UK, interest predominantly lies in the US where the absence of a national health service results in a larger burden falling on educators to provide this kind of support. Although this part of the market is extremely underdeveloped, we see some scope for activity here moving forward.

Conclusion

The Recruitment sector saw plentiful activity in the software deals space, illustrating the important role of acquisitions in integrating new technologies to expand service capabilities. One would expect this trend to continue as the importance of harnessing new technologies to improve efficiency grows.

Specialists remain valuable investment opportunities, magnified by a tightening labour market. In particular, the acquisition of specialists appears to be the chosen method of niche market entrance for both trade buyers and private equity houses.

Of these niche verticals, Education saw strong activity. In this space, geographical expansion emerged as the primary rationale for transactions, with particular focus on accessing the London and Southeast markets. Furthermore, we saw some sought-after sub-verticals emerge, pointing to potential future deal flow to gain access to niches like cognitive behavioural therapy (CBT) recruitment for education providers.

Director’s outlook

Head of Staffing, Charlie Watson

“Despite the lingering global economic uncertainty non organic investment into the sector remains strong. The upcoming UK budget and US election is going to provide some much needed clarity on the direction of both economies and hopefully support with transaction volumes."