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Grant Thornton’s Solent 250 Sector Watch A good look at recruitment


The business services sector is a broad church, often grouping together businesses with vastly different business models, writes Caleb Lewington of Grant Thornton corporate finance. As we enter Q2 the economic recovery continues to be uncertain. This article focuses on recruitment as an interesting segment of the wider business services market as its fortunes are a good early indicator of the sector’s and indeed the wider UK’s economic prospects.


Two key trends are evident in the recruitment industry – those of international expansion and increased M&A activity.


UK recruitment firms are increasingly pursuing international expansion in order to gain exposure to faster-growing markets and diversify from an uncertain UK economic environment. However, the marked increase in domestic M&A activity is a good indicator that investor confidence is returning, especially in strong sub sectors eg healthcare/financial segments.


M&A activity has shown a marked increase in the recruitment sector in the latter half of 2010 and so far the trend appears to be continuing into 2011. The most active category has seen the renaissance in the activity of private equity investors with a large proportion of deals involving private equity backed businesses. Transactions include the following: • Gi Group acquired Right4staff which represented an exit for Alchemy partners • Baird Capital Partners sold recruitment agency Aston Carter Group (investment banking) to Allegis Group for £55 million • Frog Capital invested £3m in Rated People (online)


• Baird Capital funded MBO of Nigel Wright Group (European multi-sector)


Ones to watch


These Solent 250 recruitment companies are making the most of these challenging times


Fusion People


Established in 2003, Fusion People is a provider of technical recruitment services operating from an international network of offices. The company employs over 200 staff


www.businessmag.co.uk


• Blackstone funded acquisition of Pulse Staffing by Independent Clinical Services (healthcare)


• Matrix funded MBO of RDL Corporation (European niche IT recruitment) • Graphite Private Equity invested in Teaching Personnel (supply teachers).


Also notable from the above is the increased activity of global trade purchasers such as GI Group and Allegis. The activity of other acquisitive corporates has been recently demonstrated by Advantage Technical Resourcing’s acquisition of Atlan, and other opportunistic trade acquirers such as Morsons and the now troubled Healthcare Locums.


There remain a number of acquisitive corporates and potential private equity backers but the main issue has been sourcing quality assets with a shortage of willing vendors. The dilemma for owners of quality recruitment firms is balancing the options of seizing the opportunities for growth independently verses either aligning their fortunes with a PE backer or even considering a total exit.


The up-tick in recent M&A activity has been driven by a number of trends, namely; the economic recovery, private equity’s desire to put capital to work, opportunistic/ distressed acquisitions and a general realignment of vendors’ price expectations.


The UK’s economic recovery driven by domestic demand has


internationally, and has a turnover in excess of £40 million.


Advanced Resource Managers


Formed in 1996, south coast-based Advanced Resource Managers operates as a technical recruitment specialist focusing on automotive, infrastructure and built environment, defence, IT and technical sales, power and energy, space, telecommunications and manufacturing industries. The company employs 160 staff and has a turnover of £70m.


been sluggish, although there have been notable bright spots. Areas such as financial recruitment bounced back strongly following steep declines post credit crunch. In addition, firms in technical recruitment areas or those that service UK exporters have seen a stronger recovery as the weak pound has driven demand and strong overseas growth.


There remain significant challenges for acquirers given the constraints of debt funding, which will remain a feature of the market, however deal momentum will continue as firms and investors alike see the numerous opportunities for building scale and expansion.


International growth remains key to a number of players in recruitment that service global industries. Examples include oil and gas and financial markets. The recent news that Robert Walters’ full-year net fees had risen by 49% to £155m driven by strong growth in emerging markets demonstrates this trend. However, international growth is not just the preserve of the larger corporate recruiters, others such as Faststream have grown internationally. Other firms across the business services sector will increasingly view overseas expansion as a compelling strategic option to achieve growth and mirror the globalisation of their customers.


For


more information about recruitment in this region and throughout the UK, please contact:


Caleb Lewington 023-8038-1181


caleb.lewington@uk.gt.com www.grantthornton.co.uk


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – MAY 2011


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