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Europe – Recruitment M&A returns to pre-crisis levels

06 August 2013

Deal-making between recruitment companies around the world reached its highest levels for five years last year, according to the Financial Times. While medium-sized UK and European groups sought greater scale in order to improve their ability to compete, the unforeseen result was that they also became the target of US acquisitions.

The number, and the value, of recruitment mergers and acquisitions in 2012 was at its highest since 2007, according to data from research firm Evalueserve, and M&A International, the integrated alliance of advisory and finance firms.

Globally last year, 136 mergers and acquisition (M&A) deals were completed in the recruitment sector with a total value of USD 2.4 billion. These figures were higher than those recorded in 2008, but remain well below the 174 deals completed in 2007, which had a combined value of USD 7.1 billion.

Robert Walters, chief executive of the eponymous UK recruitment group, said the pick-up in deal-making reflected increasing competition for services internationally. He told the Financial Times: “Medium-sized firms have found it difficult to compete.”

Mr Walters described the higher M&A activity in 2012 as partly a “flight to safety, with some medium-sized firms wanting strength through being bigger”.

In recent years, UK recruiters – including Robert Walters, PageGroup, Hays, and SThree – have been seeking to compete in more overseas markets, expanding further afield into Latin America and the Asia-Pacific region. However, competition for M&A is now coming from some unexpected quarters. John Nurthen, Executive Director International Development for Staffing Industry Analysts commented, “Not only is M&A picking up again, but we have started to see Japanese staffing companies making acquisitions outside of Japan for the first time including within Europe and the US. At the same time, large hitherto domestic French staffing firms like Synergie and Groupe Crit have begun to venture into English-speaking staffing markets”.

Caroline Belcher, a partner at Cavendish Corporate Finance, a member of M&A International, explained:  “Recruitment firms are responding to increasing pressure from ever more international clients who need human resources services with a similar global reach.”

Ms Belcher said the pick-up in recruitment M&A activity last year was partly driven by this need for groups to expand, as well as increased confidence among acquirers.

Robert-Jan van de Kraats, global chief financial officer at Randstad told the Financial Times: “You have consolidation at the global level and also at the local level.” He said clients have an increasingly international presence, and recruitment companies have had to expand to match that.

“It’s necessary to be… a significant operator in various geographies, but also [to] serve the client in multiple spaces,” Mr van de Kraats added.

In 2007, Randstad, which specialises in temporary placements, bought Dutch peer Vedior in a deal worth about EUR 3.3 billion. The acquisition accounted for almost half of the total M&A deal values in the recruitment sector that year.

Mr van de Kraats said mergers have also been driven by the “highly fragmented” nature of the sector, in which barriers to entry are low but organic growth difficult to achieve.

Ms Belcher said another factor driving higher M&A activity was a return of private equity buyers in the sector. “Private equity groups have made money in recruitment [before], and they are looking at the sector again,” she said.

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