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 element.
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 ca