M&A activity in recruitment expected to rise by close to 50% in 2025

The latest report from BDO reveals a significant upswing in the acquisition and sale of recruitment businesses in the UK, showing a substantial increase of almost 50% in 2024 compared to the previous year. Despite the challenging economic landscape, a total of 104 deals were completed during the year, pointing to a promising trend in the recruitment sector.

While trade-led transactions were predominant, private equity investors also played a considerable role, participating in 30 deals in 2024, up from 24 deals in 2023. James Fieldhouse, BDO’s M&A partner, anticipates continued momentum in M&A activities within the recruitment industry this year. He highlights the persistent low-growth environment in the UK as a driving force for agency directors to explore new opportunities, whether through international expansion or diversification into new sectors and markets.

The report identifies key players in the recruitment sector, including Recruitment Entrepreneur and Bluestones Investment Group, accounting for 8% of the total deal activity in 2024. Overseas investment in the UK recruitment sector, particularly from the US, surged by 78% in 2024 compared to the previous year, with 16 deals completed as opposed to nine.

Noteworthy growth was seen in M&A activities for executive search firms, with more than three times the number of deals in 2024 than in 2023. The engineering recruitment sector also attracted dealmakers, including trade and management buy-outs, with a high demand for ‘green engineering’ roles. However, along with the upward trend in acquisitions and sales, the industry also faced challenges in 2024, marked by a significant number of business insolvencies. On average, 43 recruitment businesses declared insolvency per month during the year.

To mitigate the risk of insolvency, Glyn Maisey, managing director of BDO’s Special Situations M&A division, stresses the importance of maintaining a sharp focus on liquidity, not just profitability. Implementing robust cash flow forecasting mechanisms is essential for ensuring the financial wellbeing of recruitment businesses amidst economic uncertainties.

The report further delves into the evolving landscape of talent acquisition companies and recruitment agencies, describing the current sentiment as “somewhat complex”. While reports of redundancies and job cuts coexist with concerns about skill shortages and reduced productivity, job growth in emerging areas like AI and Environmental, Social, and Governance (ESG) remains promising. Clients now seek partners who can provide solutions to various talent challenges, emphasizing the need for a strategic approach to reskilling and talent retention.

As the recruitment industry navigates through changing dynamics, recruiters are urged to rethink their reward and recognition strategies to align with evolving client expectations and market demands. Traditional methods may no longer suffice in a transactional-driven environment, underscoring the importance of adapting to new paradigms that prioritize long-term relationships and holistic service delivery.