Recruiters muscle in on acquisition activity

Recruitment consultancies are embarking on mergers and acquisitions in a bid
to compete for business at the top of the corporate pyramid.

One of the drivers for the current buoyant level of activity in this market
is the expansion of services offered for human capital management (HCM), as
providers strive to forge lasting relationships at board level. With HR
departments continuing to use outsourcing as a way of reducing administration
costs, HCM firms are using acquisitions to add value as well as scale.

M&A activity within the HCM sector has exceeded $11bn (£7.18bn) since
1999, with more than 270 deals completed. This year has seen less activity, but
there have still been 29 deals worth $490m since January.

The strategic imperative for providers is clear: large-scale corporate
restructuring across the globe has cemented the trend towards companies hiring
increasing numbers of temporary staff. The ultimate aim of an outsourcing
company, is to develop board relationships in order to win the most valuable
business process outsourcing contracts, of which pure recruitment is only one

Recruitment consultants are moving beyond pure recruitment and are seeking
to manage the retention, development and management of a firm’s HR.

Examples of recruitment consultancies expanding their service offering
through deal- making, include Adecco’s purchase of Job Pilot, Manpower’s launch
of Empower, and the acquisition by Capita RAS of a spread of recruitment,
training and HR outsourcing businesses.

The natural entrepreneurship of smaller recruitment firms is also generating
deals, as existing management teams buy businesses from their owners. In March
and April, both Right4staff and Technology Teaching systems secured private
equity backing for management buyouts.

Another driver of mergers and acquisitions activity in the sector relates to
HR contracts coming from central government for key public sector services.

The healthcare sector has entered into three to five year contracts with
suppliers creating a closed list of providers. This particular barrier to entry
has been one of the reasons why companies such as Nestor have purchased
healthcare recruitment providers with ongoing contracts.

As more deals are sealed in the sector, HR executives will be able to buy
more services from a single, trusted source. But recruitment consultants must
ensure they can deliver at the very top of the pyramid, where successful
applicants only need apply.

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