Why is Private Equity drawn to the recruitment sector?
Why is Private Equity drawn to the recruitment sector?
In February 2025, we released our latest M&A report for the recruitment sector and it’s of no surprise that the sector continues to experience high levels of M&A activity. In a highly fragmented and increasingly international market the need for consolidation continues with quality assets attracting interest from both strategic and financial acquirors.
Despite a prolonged period of economic challenges, our latest research counted 104 transactions in 2024 involving a UK entity, up 49% on the previous year. As in previous years, private equity and venture capital made up a significant proportion of these transactions reaching 29% for 2024, slightly lower than previous years in proportion terms but a jump from 24 to 30 deals in volume terms.
This figure doesn’t even take in to account private equity backed businesses which are becoming increasingly prevalent and ramping up competitive tension in the bid to build out their service offering, scale quickly and capture synergies.
It’s fair to say that the sector doesn’t appeal to all of the investment community with many houses reluctant to take on the risk of key personnel leaving the business after the transaction. That said there are still a substantial number of houses who are attracted to recruitment so what is it about the sector that draws them in?
Aside from a need to deploy capital after several years of cautious investment the sector does possess some fundamental core value drivers and a number of success stories. In 2023, we saw Literacy Capital’s investment in Kernal Global (was Dartmouth) secure a 9.8x investment return with Literacy retaining a small minority. Over the hold period the business grew from 50 employees to almost 300 operating out of 5 countries across 3 continents.
More recently, in November 2024, BGF successfully exited Operam Education after supporting an ambitious buy-and-build strategy which saw Operam complete 8 acquisitions over 5 years. BGF re-invested alongside Three Hills Capital who incidentally were the same house to re-invest alongside Literacy Capital in Kernal Global.
So what makes recruitment attractive to private equity?
The sector possesses a number of characteristics key to house investment strategies and likely to tick the boxes at Investment Committee:
- growing end-user markets
- diversified revenue streams with attractive blue-chip clients
- experienced management teams who have successfully integrated businesses through a ‘buy & build’ strategy
- 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.
- visible earnings underpinned by customer contracts or PSLs and with limited client concentration
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 growing importance of AI and Machine Learning throughout the recruitment process, it is not a surprise to see almost one quarter of deals in 2024 being in the Recruitment Platform/ Software space and 56% of these transactions involving PE/VC funding.
Outlook for recruitment
So how do I see 2025 mapping out? The recruitment industry was particularly badly hit by the announcement of higher National Insurance costs in the Autumn Budget and a much lower threshold on contributions with many companies choosing to freeze hiring. This coupled with wider economic uncertainties has impacted overall business confidence. However, there has been a steadying of the ship regarding interest rates as
the Bank of England base rate remained relatively flat during 2024 and we expect this to continue in 2025.
We expect to see positive movements in the sector which builds on M&A activity we’ve seen during the last 12 months. Many private equity firms have held back and are now under pressure to invest and with a lot of dry powder available those recruitment firms meeting the criteria outlined will be highly sought after investment targets.
If you are interested to learn more about M&A activity in the recruitment industry, please read our latest Recruitment Market Report.