With the highly-anticipated Budget on 30th October, and speculation about how it will impact employers and recruiters, TALiNT Partners brought together 40 recruitment leaders, industry experts and advisors to the Shooting Gallery at the Haymarket Hotel in London for insights on how to build equity value and grow more profitably.
TALiNT Partners MD and host Alex Evans set the scene by saying: “A shrinking workforce, a growing freelance population, and demand for more agile and insight-led workforce solutions are creating challenges and opportunities for recruiters. The question we’ll help you to answer is how to capitalise on them and control the controllable despite the uncertainty about new policy and tax decisions from Government.”
M&A trends & market predictions for 2025
Opening the first panel, Geraint Rowe, Managing Partner at Gambit Corporate Finance, and Nick Davis, Partner at Mishcon de Reya, noted that M&A transactions were significantly higher in the first half of 2024 compared to the latter half of 2023. Gambit CF’s latest Human Capital M&A Report highlighted a 170.7% increase in average deal values from Q2 2024 to Q3 2024.
“The increasing confidence of business owners, the emergence from economic stagnation and the increasing availability and lowering cost of capital augurs well for M&A activity in the sector,” said Rowe. “H1 2024 M&A deal volumes were the highest they have been since H1 2016, but this is not just about the impending CGT changes. As ever, thorough preparation and consideration of strategic timing is paramount to maximise the outcomes.”
A lack of transparency with plenty of speculation around potential increases in Capital Gains Tax coming into effect has motivated some to try to beat the deadline of the Government’s first Budget on 30th October, and Nick Davis said his firm has been extremely busy helping owners of recruitment companies with tax restructuring work in recent months. “A staggered increase in Capital Gains Tax over the next few years would help owners and businesses to adjust, and both the Government and the economy would benefit from this approach,” he said.
“A staggered increase in Capital Gains Tax over the next few years would help owners and businesses to adjust, and both the Government and the economy would benefit from this approach.”
Exploring the valuation drivers in recruitment businesses, Rowe observed that the main investor criteria hadn’t changed. “They are looking for strong contractual agreements with key clients mixed with a diversified customer base; geographic coverage and differentiated services, but not over-diversified so it dilutes value to purchasers; and good NFI/EBITDA conversion rates and productivity per fee earner.”
Looking at the best sectors, Rowe and Davis agreed that education, healthcare and digital were more attractive than construction and light industrial. “Growing sectors include data security, AI, and ESG (Environmental, Social, and Governance) as it’s becoming increasingly important for businesses, influencing their strategies and operations,” said Rowe.
Like DE&I, ESG is a complex area where recruiters need to demonstrate their internal expertise and impact, observed TALiNT Partners CEO Ken Brotherston.
Looking forward, in the immediate term, Rowe and Davis said the Government needed to provide certainty with a Budget that stimulated growth and made the UK attractive to foreign investors – with clarity on the Employment Rights Bill, taxes and tax policy for non-doms key.
Longer term, Rowe urged recruiters to consider changing workforce trends, like global mobility, younger generations changing careers more frequently, a growing freelance population, and the impact of AI on entry level roles, which were all explored in roundtable discussions.
Strategies & solutions for profitable growth
The second panel brought together perspectives from Adam Fletcher, CEO of IPE Ventures which has acquired Taskmaster, Source, TMC, JM Group and CBSButler within the last 18 months; Neil Purcell, founder of Talent Works which was recently acquired by TXM Group; James Strickland, an investor and board advisor to firms including TXM Group; and Chris Bloor, Compliance Director of Parasol, which is helping recruiters to diversify into RPO and MSP in the UK and globally.
Commenting on demand for more agile workforce solutions and total talent management services, Chris Bloor stressed the importance of monitoring changes in worker legislation, such as day-one employment rights around sick pay and maternity leave. “This is a government tasked with growth, so whilst we can expect a shift it won’t be sudden or immediate, but recruiters need to be able to manage any risk from these changes for themselves, their clients and their candidates,” he explained.
Talent Works launched its mid-market MSP solution two years ago to capitalise on growing demand for total talent solutions in this increasingly competitive part of the market, having already differentiated with an established EVP solution.
“Employer brand is still one of our premium products, but it is much more integrated into a more diversified business,” explained Neil Purcell. “AI and talent intelligence is saving us considerable time on research and supporting higher value talent solutions.”
Asked what lessons he had learned from the process of being acquired, Purcell said: “I had built a strong leadership team and employer brand that helped me to retain talent through the process. You need to bring more than an EBITDA and we had diversified into some key areas in the UK and US. Getting corporate finance advice early enough was a good decision and having a board advisor that understood our business and the acquirer as well.”
“With a lot of dry powder out there in PE it looks like 2025 could be a better year for the staffing sector and M&A.”
Investor and board advisor James Strickland worked with Neil on TXM Group’s acquisition of Talent Works and shared his insights on how to drive value in recruitment businesses and what acquirers are looking for.
“With a lot of dry powder out there in PE it looks like 2025 could be a better year for the staffing sector and M&A,” he said. “Buyers and investors are looking for strong training and development of staff and management, a hands-on approach to client engagement, fully embraced tech for better conversion of Gross Margin to EBITDA, and a focused range of revenue streams, from EVP and recruitment campaigns to MSP & RPO like Talent Works.”
The theme of investing in a talented leadership team was emphasised by Adam Fletcher, who noted: “As an investor, your worst nightmare is that you buy a company, and everyone leaves. Having an effective retention and wealth creation mechanism to align the interests of management and the investor is key to the future success of the company.”
Advice from the advisors
Concluding the session with advice for more profitable growth and building value, Chris Bloor said those with diversified businesses, particularly in RPO and MSP, need to ensure their house is in order from a compliance perspective to avoid due diligence risks and liabilities, and working with partners to support contractor solutions in the UK and globally.
Whilst Adam stressed the value of having absolute clarity of purpose, with laser focus on domain expertise, client engagement and pricing, he urged leaders to never forget the basics of strong fiscal and operational competence as lots of small improvements can have a significant impact.
Neil Purcell emphasised the significance of having an aligned leadership team and diversified services, whilst James Strickland reiterated the need to focus on conversion from gross margin to EBITDA by leveraging technology and outsourcing where possible to reduce cost and improve profitability. He also mentioned the importance of growing the value of existing clients, noting that: “Upselling a client is much easier than winning a new one.”
Closing the event, Ken Brotherston said recruitment leaders need to balance the alignment of shareholder, employee, and customer expectations. “Shareholders want profitability, employees are motivated by sales, and customers are focused on how quickly and effectively their jobs can be filled. Ultimately, getting this alignment right will give you the foundation for a scalable and successful business,” he concluded.
