Blog:

Why is Private Equity drawn to the recruitment sector?

29 September 2021

As some of you might know I’ve been commenting on M&A activity within the recruitment sector for a number of years now. During this time some common trends have become apparent; firstly the level of deal activity is unrelenting, with trade buyers and investors continuing to acquire and invest into this increasingly fragmented market. However, the other clear theme we’ve seen year after year is the continued appetite of private equity for investing in recruitment businesses, with PE investment typically constituting anywhere between 20-30% of all UK deals.

So why are private equity consistently drawn to recruitment companies which some perceive to be intrinsically risky, given the business’s biggest asset, its people, leaves the building every evening?

Is it merely due to the sheer volume of liquidity currently available that Investment Directors have to find a home for? Or are private equity fund managers lured by the sector’s core fundamental value drivers alongside the success stories of the recent past? Key Capital Partners generated almost 7x their investment when they sold Sparta Global to Inflexion at the end of 2020, with Inflexion themselves having achieved similarly healthy returns on other human capital investments including Red Commerce and Optionis. 

What makes recruitment attractive to private equity?

More recent trends would suggest that recruitment companies are inherently attractive to PE. Many companies display key characteristics which make them appealing to investment. Such characteristics include;

  • growing end-user markets
  • diversified revenue streams with attractive blue-chip clients
  • strong management teams with a hunger for growth
  • specialisms which they are ‘famous’ for
  • scalable business models with the ability to diversify into new sectors or territories
  • cash generative businesses with low demand for capex during the investment cycle.

In addition to the above, we also continue to see private equity moving to invest within tech-enabled assets, with the recruitment sector being a good example. Given this trend and the overall shift towards home/remote/hybrid working, it was no surprise to see a video technology recruitment specialist receive investment during the period, with Odro receiving capital from BGF in May 2021.

Outlook for recruitment

So how do I see the remainder of 2021 mapping out? Safe to say that I hope that the current momentum continues, and plenty of live indicators suggest that it will. Unfortunately, as many will appreciate, the long-awaited “Freedom Day” hasn’t quite lived up to expectations. The levels of COVID-19 cases/hospitalisations, the numbers of people self-isolating, the ongoing measures to control the spread of COVID-19 and their effect on economic performance remain unpredictable. The Job Retention Scheme is also being brought to a close. 

However, we know that the recruitment sector has so far managed to navigate three lockdowns with a degree of success. That track record may also be attractive to investors.

UK recruitment deals 2020 vs H1 2021:


Thus, as the volume and availability of funding continues its meteoric rise, in conjunction with the continued influx of attractive, high quality and innovative recruitment companies, I envisage this trend of private equity investment into the sector will continue.

 If you are interested to learn more about M&A activity in the recruitment industry, please read our latest 2021 Mid-year Recruitment Market Snapshot.