Recruitment Sector Insight

SECTOR INSIGHT RECRUITMENT

DEAL ACTIVITY IN THE RECRUITMENT SECTOR REMAINS STRONG, WITH HIGH LEVELS OF INTEREST

Consolidation in the recruitment sector continues at pace. High multiples are being paid for recruitment businesses, demonstrating that now is an opportune time to consider a potential sale. Due to the strong levels of deal activity within the recruitment sector, we are interested in talking to business owners who are considering a potential sale. At KBS Corporate, we truly understand what your business means to you and we appreciate that any decision to pursue a sale or inward investment is never taken lightly. Your business becomes personal to us, which means we only work with a select few clients at any point so we can dedicate the time, attention and effort that you and your business truly deserve. We are committed to developing a personal partnership with you throughout the process, ensuring the results we achieve not only meet but exceed your objectives and expectations. Our hand-picked team of corporate financiers have experience in owning, running, exiting and providing lead advisory services on businesses across many sectors, with recruitment being a particular specialism. We understand the time and effort it takes to grow a business, so we ensure we maximise our time and effort to achieve the best possible value for our clients. Our team utilise the expertise they have developed over decades of working both within trade and M&A across the UK, Europe and the United States - putting us in the best position to guide our clients on their own journey.

If you would like to discuss the options for exiting your recruitment business, please contact: paul.lloyd@k3capitalgroup.com for a confidential, no-obligation discussion.

FUTURE MARKET PROJECTION

Revenue in the industry is climbing thanks to a solid demand for recruitment services. Over a five-year period through 2023-24, online recruitment site industry revenue is expected to increase at a compound annual rate of 7.3% to £892.1million. Those figures are expected to increase further over the five-year period to 2028-29, to 8.8% and £1.4billion respectively. Offline employment agencies’ revenue is forecast to grow to £18.8billion over the five years through 2023-24 and to £24.9billion through 2028-29, with the personalisation offered by placement services ensuring they will remain highly relevant. Among the growth drivers is a greater focus, especially among younger people, on using their free time for professional development, a trend which saw an uptick during the Covid-19 pandemic when national restrictions meant more time became available to learn new

skills that would enhance career prospects. ‘Gen Z’ individuals who are entering the graduate recruitment market are increasingly technologically literate and place an intense focus on self-improvement and an aspirational lifestyle. Health and social care will remain key recruitment sectors in the short term, due to labour shortages exacerbated by industrial action, while the IT and technology sector is a booming market. Investment is pouring into UK tech, with high demand for employees skilled in coding, web design and data management, leading to a surge in job listings. In addition, the government and education sectors are understaffed and leaning on recruitment agencies while industrial, construction and related trade companies are hiring more workers as supply chains improve.

HOW ARE UK RECRUITMENT COMPANIES FARING?

According to Recruiter.co.uk, insolvencies of UK recruitment agencies have increased by 14% in the year to 2023-24 from 363 to 413. That represents a third consecutive year of insolvency increases. This is partly a knock-on effect from the Covid-19 pandemic when the income for many recruitment companies fell to near zero during the months of lockdown, which meant the need to take out government-backed Bounce Back Loans to survive. The weakness of the economy as a whole has affected many companies’ ability to make repayments on those loans and forced them into insolvency.

WHICH COMPANIES ARE ACQUISITIVE?

In the online recruitment sector, the top four companies – Recruit Holdings (Indeed and Glassdoor), Totaljobs, LinkedIn and Reed – account for two thirds of industry revenue and therefore have a tight grip on the market. Many recruiters have acquired smaller companies to enter and expand their presence in other markets, for example, Totaljobs acquired Milkround to specialise more in graduate recruitment. The offline market is much more fragmented as leading operators Hays and PageGroup have market shares of only 3.9% and 1.4% respectively, with both companies investing in new technologies to boost productivity amid a particularly buoyant market for temporary positions.

www.kbscorporate.com

A SAMPLE OF RECRUITMENT COMPANIES WE HAVE SOLD

On-Track Recruitment – A provider of professional, dependable temporary and permanent recruitment solutions for clients within a wide range of buoyant sectors, based across Surrey and Hampshire. Having been with On Track Recruitment since the company was founded in 2000, Shirley Cripps approached KBS Corporate about the sale of the business to enable retirement plans.

level of service to customers were of utmost importance. This shaped KBS Corporate’s research strategy towards sourcing a UK trade buyer, which proved a popular approach and resulted in multiple offers. The ultimate offer came from Sussex-based Sammons Recruitment Group, enabling it to broaden its geographical footprint and strengthen its client base.

On Track Recruitment - KBS Corporate

During initial discussions, it became clear that staff retention and continuing a high

Jenrick Group – A successful and well established provider of high-quality, client focused recruitment solutions, Jenrick has traded for over 50 years and established a prominent presence in the engineering, food, technology and commercial sectors. KBS Corporate implemented a research strategy with a primary focus on sourcing a trade buyer. This proved highly successful with 64 interested parties, including high levels of UK trade and interest from private investors and private equity. These high levels of interest were utilised to produce multiple offers. The ultimate offer came from The MCG Group, led by Colm McGinley, and was its second acquisition via KBS Corporate. The acquisition of Sally and Daniel Rowley, shareholders of I.P. Recruitment Limited, instructed KBS Corporate with the sale to allow for lifestyle changes. It became clear during initial discussions that sourcing a synergistic buyer who would facilitate further growth of the business, including the workforce, was of utmost importance. I.P. Recruitment - An independent recruitment agency supplying temporary and permanent staff to a variety of sectors, the company was established in 1994 and developed an excellent reputation with an enviable client base including several blue-chip organisations, some of whom had provided business for 20 years.

Jenrick enabled MCG to expand its geographic footprint into the Midlands and South East of England and add new specialisms to the group. Simon Murphy, CEO of Jenrick Group, said: “Finding the perfect custodian for the business, someone who had a similar culture to ours and valued the employees as much as we do, was our primary focus. Upon meeting Colm at MCG, we believed we had found that. I am in no doubt the company will continue to flourish and those within the business will continue to enjoy a wonderful working environment which allows them to grow both professionally and personally.” KBS Corporate Advises on the Sale of The Jenrick Group - KBS Corporate KBS Corporate’s research strategy was implemented to find a buyer who would ideally have experience in recruitment, and the knowledge and resources to push the company to new heights. This resulted in a focus on UK and European recruitment agencies, which attracted over 25 interested parties. Kenect Recruitment Limited produced the successful offer, to support its wider operation and growth expectations over the coming years. KBS Corporate Completes Sale of I.P. Recruitment Limited Within Seven Months - KBS Corporate

COMMENTS FROM RECRUITMENT COMPANIES WE HAVE SOLD

“

Guy Haynes (KBS Corporate Director) and his team were always available and very helpful in helping to negotiate a good deal for all those involved in the MBO of my business. All parties appreciated all the help and advice and look back on the whole experience with a very positive outlook.

Ian Simkins, Director, Silven Recruitment

“

Becoming part of the Kingdom Group will help us to scale up even faster, not least in terms of technology and back-office support, which are both crucial if we are to help to meet the huge demand in the health and social care marketplace.

Balraj Singh Sohal, Managing Director, Brindley Medical

“

This investment means we will be able to fast-track our ambitious growth plans, adding further dimension to our services and creating a larger geographical footprint.

Mo Parkin, Founder, Academic Appointments

www.kbscorporate.com

EXCEPTIONAL RESULTS DELIVERED BY AN EXCEPTIONAL TEAM

Founded in 1998, KBS Corporate has established itself as the UK’s No 1 mid-market company sales adviser (source: LSEG) by adopting an approach that truly disrupts the industry’s traditional methodologies. We are not your typical team of M&A advisers, we are entrepreneurs too. Our growing team are at the forefront of each of our success stories, for our directors collectively possess hundreds of years of combined experience within the company sales arena across the globe, for some of the world’s leading and most respected firms.

We work with our clients side-by-side throughout the transaction to deliver exceptional results.

WE LOOK WHERE OTHERS WOULDN’T THINK TO LOOK

KBS Corporate offers a highly creative and proactive approach to identifying prospective acquirers from across the globe. We possess the knowledge, contacts and personal touch, combined with data, systems and technology to maximise buyer reach whilst only contacting those with the financial means, expertise and desire to acquire and grow your company. With a history of delivering success, we will provide a tailored sale strategy to realise a complete exit solution or a partial sale to release capital. This unique approach can be discussed in an initial consultation where we aim to understand each of our clients’ individual circumstances, desires and objectives to determine a suitable strategy.

Book your complimentary consultation today

FOCUSED ON SUCCESS Experience – Over more than 25 years we have successfully completed thousands of company sales across all industries, many of them in the recruitment sector. . Understanding – We invest all the time and effort needed to fully understand your objectives and what you want to achieve. Dedicated – We forge strong relationships with our clients, going the extra mile to realise their maximum worth.

DEAL VALUE DRIVERS

BUSINESS Positives

Negatives

1. Contractor-focused business (minimum 40% contractor revenue)

1. More permanent based business

2. Low number of clients / concentration of income limited to those clients

2. In-demand sector

3. Low churn of staff & high tenure experience 3. Low margin / high churn contractor book

4. Lumpy revenue generation / seasonality of workers

4. Overseas routes to market & strategy

CANDIDATES Positives

Negatives

1. Highly skilled candidates

1. Short term placements

2. High drop out / clawbacks on perm placements

2. High margin contractor sectors

3. Long term placements

3. Low-skilled temp labour

4. Recurring placements

4. Low demand sectors / lack of specialism

STAFF Positives

Negatives

1. High performing consultants

1. Inconsistent performance

2. LTIP (Long term incentive plans)

2. High volumes of hires or high churn

3. High concentration of billings across top billers

3. Experienced management team / low churn

4. Strong ramp profile of new hires

4. Lack of succession planning

CLIENTS / PORTFOLIO Positives

Negatives

1. Diverse client base & low concentration 1. High concentration of revenue per client 2. High value clients / contractors / margins 2. Decreasing or inconsistent spend 3. Recurring contracts / retainers / ongoing income 3. Low value brands / small business 4. Geographical spread & growth potential 4. History of bad payments / bad-debt

FEATURE

TOP 12

Recruitment Industry Trends & Statistics

#1

THE UK RECRUITMENT MARKET REACHED £141.2 BILLION AT THE END OF 2022.

This growth represents a cumulative £20.1 billion increase on 2019’s value. This demonstrates the huge role recruitment firms have played in driving post-pandemic recovery for the UK economy. The growth of the recruitment market has been meeting an influx of client and candidate needs. It shows how the market is expanding and the opportunities that are to be had within the industry.

#2

RECRUITERS FILLED 25 MILLION TEMP AND CONTRACT ROLES IN 2022.

This was found in the Recruitment & Employment Confederation’s latest report, an annual survey drawing on data for the financial year. Temporary and contract placements were up on the 2021 figures, with a huge 25.7 million placements made in 2022. This is compared to 22.4 million in 2021, and emphasises the importance and growing proficiency of the industry.

#3

THERE ARE NOW OVER 30,000 RECRUITMENT AGENCIES IN THE UK.

The RISR counted 30,035 recruitment agencies in the UK in 2022. The findings showed a 6.5% increase on the previous year, and a total of 201,154 people working in UK recruitment agencies. 79.5% of these agencies are micro-businesses with fewer than 10 employees.

#4

ONLY 16% OF ALL RECRUITMENT AGENCIES WERE IN EXISTENCE BEFORE 2008.

According to data from Companies House, the number of recruitment agencies operating in the UK has grown on average 27% per year, since 2008. This was triggered by the fallout of 2008’s global financial crisis and the resultant rise of unemployment. The industry is going from strength-to-strength, despite periods of economic instability. It’s a market with real momentum, which is forecast to only continue expanding.

#5

ALMOST A THIRD OF THE UK’S AGENCIES ARE LOCATED IN LONDON.

The capital unsurprisingly has more recruiters than anywhere else in the country, with 31% located in the region. Manchester takes second place, with 2,749 recruitment companies, according to BoldData. Hertfordshire also has a large number of recruitment agencies, making up 3% of the country’s total.

#6

THE NUMBER OF WEEKLY JOB POSTINGS IN 2023 MORE THAN DOUBLED. Data from CIPD shows that in the first week of 2022, weekly job postings were at approximately 1,150,000. By the middle of 2023, this figure had more than doubled, sitting close to 2,350,000. Vacancies are higher than ever as the labour market continues to rise. UNEMPLOYMENT RATE IS EXPECTED TO RISE FROM 4.23% TO 5% BY THE END OF 2024. The latest data from ONS placed the unemployment rate at 4.3% in May of 2023. This is projected to rise further in the next year, with forecasts placing it between 4.5 and 6% by the end of 2024. Before the arrival of the COVID-19 pandemic, the UK had relatively low levels of unemployment, comparable with the mid-1970s. THE AVERAGE WEEKLY EARNINGS INCREASED BY 7.3% IN 2023. Incomes Data Research found that total pay, which includes bonuses, rose by 7.2% in the year to October. This was down from 8.0% in the year to September. Included in this data is a figure of 8.6% for public sector salary growth. Manufacturing also had a particularly high rate of growth, 7.7% in the year to September. This rate of salary growth has now run ahead of the inflation rate for several months. 56% OF AGENCIES CITE TALENT AS THEIR TOP CHALLENGE. Tight talent pools have been the top challenge for recruitment agencies for six of the last seven years with the pandemic being the only exception. At 56%, this figure sits 10% higher than last year, in which tight talent pools were voted as the largest problem for 46% of agencies. In response to this issue, recruitment professionals reported that they plug the gap by ‘engaging with passive candidates’ and ‘asking candidates for their preferred communication method’. WINNING NEW BUSINESS IS THE TOP PRIORITY FOR UK AGENCIES. Recruitment professionals cite new business as their number one priority, with 39% of BullHorn’s study respondents expressing an increased commitment. Also taking top priority spots was ‘talent acquisition’ and ‘digital transformation’. NEW POSITIONS TAKE AN AVERAGE OF 42 DAYS TO FILL. The Society of Human Resource Management (SHRM) reports an average time to fill of 42 days to fill positions. However, this is dependent on the industry. For example, hiring for a position in the engineering industry can take as long as 62 days. As a recruitment business, you’ll know that it’s worth the wait when you place the perfect candidate. 11% OF AGENCIES ARE USING AI AND RECRUITMENT AUTOMATION. Vervoe have found that only 11% of recruiting businesses are making use of AI screening tools and online assessments. Is this more or less than what you expected? Like many other industries, AI is increasingly helping to streamline recruitment processes, with softwares now scanning resumes and even leading interviews.

#7

#8

#9

#10

#11

#12

www.kbscorporate.com

K3TA SERVICES SUITABLE FOR RECRUITMENT SECTOR

FINANCE TRANSACTIONS

EMPLOYEE OWNERSHIP TRUST (EOT): An EOT is a trust for the long-term benefit of the employees. Company owners can sell their company to an EOT, rather than a traditional buyer. The best-known advantage of an EOT is that the sale is completely tax free. However, there are also other significant commercial and practical advantages over a traditional company sale as the process is collaborative rather than adversarial We offer a “one-stop shop” service for sales to an EOT covering company valuation, financial modelling, debt advisory, legal and expert tax advice. We can provide a competitive fixed price quote to cover all the services required and deliver a seamless service from start to finish, including detailed advice for operating under an EOT ongoing. PRE-SALE PLANNING: Where shareholders are working toward a sales process we advise on pre-sale restructuring that can simplify a future disposal and maximise post-tax value. We also carry out vendor due diligence to identify tax issues and recommend remediation strategies before you face the time pressure of a live deal. MANAGEMENT TEAM: Ensuring the management team are properly rewarded, incentivised and retained is essential to maximise deal value. We advise on share incentive schemes to provide tax efficient reward while ensuring management’s motivations are aligned with your business growth and exit priorities.

Tell me more about EMPLOYEE OWNERSHIP TRUST (EOT)

EMPLOYER TAX SOLUTIONS

EMPLOYMENT STATUS, OFF PAYROLL WORKING (IR35) AND INTERMEDIARIES’ LEGISLATION: Employment status legislation is highly complex, our specialist team can help all parties understand their obligations and support in structuring contractor engagements to reduce their compliance burden, while ensuring the engagement still achieves the desired commercial objectives. Where HMRC challenge the employment status position we can support and manage HMRC’s enquiries. GLOBAL MOBILITY: Where there is an international element to an employee’s engagement, determining the correct employment tax and national insurance requirements can be complex. We provide clients with a complete package of support so they can be sure they have considered and addressed all the issues that may impact both them and their internationally mobile employees. NATIONAL MINIMUM WAGE (NMW): HMRC takes a strict line on NMW compliance, penalties are particularly punitive with 200% financial penalties for non-compliance, as well as employers being ‘named and shamed’ by HMRC, which regularly makes local and national headlines. Our specialists support clients through HMRC minimum wage compliance checks. or can undertake an internal audit of an employer’s current procedures. THE CONSTRUCTION INDUSTRY SCHEME (CIS): CIS is complex and confusing for contractors and sub-contractors alike. The expectation of compliance from HMRC is very high and penalties for failures are harsh and difficult to mitigate. Our experts can assist with practical advice and support.

www.kbscorporate.com

RECRUITMENT IS SPEARHEADING GLOBAL EXPANSION.

WRITTEN BY ANDREW FAHEY, CEO OF THE BRIARS GROUP

EVIDENCE The Future of Jobs Report 2023 by the World Economic Forum underscores the complex dynamics at play in the global labour market with organisations and educational institutions seeking talent from a broader pool, despite the challenges posed by the pandemic and subsequent economic uncertainties. • Global Staffing Industry Revenue: The global staffing industry reached a revenue of almost $650 billion in 2022, following two years of continuous growth.

BACKGROUND T he global recruitment landscape is undergoing a significant transformation, accentuated by the aftermath of the COVID-19 pandemic. Insights from various sectors indicate a notable shift towards digitalisation, increased reliance on international recruitment agents, and a strategic pivot towards more flexible, remote, and hybrid work models. These changes are not just reshaping recruitment processes but are also highlighting the growing importance of international talent mobility and the challenges associated with it.

RECRUITMENT SECTOR REACTION The recruitment sector’s pivot towards global expansion is a natural response to the evolving demands of the modern workforce and the globalisation of business operations. As companies increasingly recognise the value of tapping into diverse talent pools to drive innovation and growth, the need for recruitment agencies that can operate across borders becomes paramount. This globalisation trend in recruitment is further accelerated by technological advancements that enable seamless remote working, making it easier for organisations to integrate employees from various parts of the world into their operations. The digital transformation within the recruitment industry, exemplified by the adoption of AI and machine learning for tasks like resume screening and candidate matching, has effectively broken down geographical barriers, making it feasible for recruiters to source talent globally. The establishment of branches in countries all over the world by many recruiters is a strategic move to capitalise on local market knowledge while maintaining a global reach. This expansion is not just about filling positions but also about understanding cultural nuances, employment regulations, and market-specific demands that can significantly impact the recruitment process. By having a presence in multiple countries, recruitment agencies can offer their clients a competitive edge, providing access to a broader and more varied talent pool while ensuring compliance with local laws and customs. This global network allows for a more strategic and nuanced approach to talent acquisition, enabling recruiters to meet the increasingly complex and international needs of businesses today. HOW ARE WE HELPING? In response to these global recruitment dynamics, the Briars Group provides solutions that enable recruitment firms to navigate the complexities of international expansion and digital transformation effectively. By offering a seamless extension to clients’ service offerings through subscription-based outsourcing of corporate and people services such as HR, Accounting, Tax, and banking, Briars helps mitigate the challenges of building new relationships, adapting to new cultures, and managing overseas operations. Our approach not only addresses the immediate needs of a globalising recruitment sector but also positions our clients to thrive in a rapidly evolving marketplace

USEFUL LINKS FOR TRENDS / DATA - May 2023 Recruitment Trends Report | WaveTrackR Hiring Trends Index: a look at the recruitment landscape of Q4 2023 | Totaljobs Recruitment Market Update 2023 - Signature Recruitment Stay ahead in 2024 with these 60+ must-know recruiting statistics (recruitcrm.io)

KBS House 5 Springfield Court Summerfield Road Bolton Greater Manchester BL3 2NT

T: 01204 291 591 E: enquiries@kbscorporate.com

www.kbscorporate.com