M&A activity in the recruitment sector: 2024 year in review

Despite an unstable landscape, sector M&A activity remained resilient in 2024. Although deal volumes did not match the record levels of 2022 (75 deals), the year still recorded an impressive 63 acquisitions, exceeding the 58 deals completed in 2023. Activity is always influenced by a variety of factors, but 2024 was particularly notable for the following themes:

• Diversity and adaptability of the sector: firms with a combination of (i) deep niche specialisms in more resilient verticals, (ii) international diversification, and (iii) a strong core of contract or repeat relationships were better positioned and viewed as having greater strategic value. There was a continued focus on niche verticals such as professional services, healthcare, technology, and engineering. In particular, there was a marked increase in professional services, corresponding with increased private equity (PE) activity in this sector generally.
• Innovation: firms offering differentiated services such as consulting, Statement of Work (SOW) models, or Recruitment Process Outsourcing (RPO), alongside traditional staffing solutions, often had greater appeal to acquirers. For example, Nashtech’s sale to PAG, Trilogy’s sale to Korn Ferry, and ID Medical’s sale to Aya Healthcare all attracted overseas buyers.
• Strategic divestment: both larger and smaller groups sought to make disposals of non-core assets to de-risk, refocus and reinvest cash in their core offerings during a period of change and funding constraints. There was also an element of more financially distressed transactions.
• Broad buyer pool: as organic growth opportunities became more challenging, both trade and PE-backed trade buyers sought acquisitions to bolster growth, aiming to secure targets at more realistic valuations than in prior boom years. Despite general caution in the sector, significant capital was, and still is, available, with a diverse pool of investors ready to support investment—but being very selective about the right opportunity.

Q1 2024 saw fewer deals compared to 2023, due to the residual effects of the 2022 post-COVID boom, which extended timelines for completing deals into Q1 2023. The boom began to unwind from Q2 2023 onwards. By Q4 2023, deal activity stabilised at 15 deals per quarter, establishing a new baseline that continued through 2024, with Q1 to Q3 2024 consistently reflecting this level.

Q4 2024 saw an increase in deal volumes, with 19 completions. This aligns with a wider UK M&A peak due to accelerated activity, with sellers aiming to complete deals ahead of the widely-anticipated threat of tax increases in the Autumn Budget. Although there was not the radical change in capital gains tax that some had feared, October 2024 was especially active, with eight completions announced in that month alone, and some deals possibly extending into the following months.

Which buyers were most active in 2024?

Trade buyers: trade became the top exit route in 2024, even when excluding PE-backed trade. Trade acquisitions rose both in volume and mix, from 27 deals (47%) in 2023 to 33 deals (52%) in 2024, nearing post-COVID volumes of 35 deals (47%) in 2022.

PE-backed trade: in 2024, secondary transactions (add-ons by PE-backed trade buyers) saw a resurgence, with 10 such acquisitions. These transactions made up 42% of all PE deals, up from 26% in 2023. This trend reflects the growing number and appetite of PE-backed acquirers, amid caution in primary PE investments (14 in 2024; down from 17 in 2023).

Overseas acquirers, especially US buyers: overseas buyers, especially those from the US, showed renewed interest in UK assets. Nearly one-quarter of all deals involved an overseas buyer, with volumes increasing to 16 deals (28%) in 2024. Notably, US buyers represented 56% of overseas deals, up significantly from the previous year. However, this was still lower than in 2022, when overseas buyers completed 30 deals (39% of all deals).

In 2024, a total of 63 transactions involving UK assets were completed. PE houses accounted for 38% (24 deals) of these transactions, either through primary investments or secondary bolt-on acquisitions by existing PE-backed portfolio companies. This activity level is comparable to the previous year, which saw 23 such deals in 2023, with a greater proportion of add-ons in 2024.

Trade buyers were the main exit route in 2024, making up 52% (33 deals) of the total, up from 47% (27 deals) in 2023. This rise was largely driven by UK trade buyers seeking inorganic growth strategies to boost their market share. Notable transactions included Zen Educate’s acquisition of Aquinas Education, expanding its services to address teacher shortages, and Approach Personnel’s acquisition of Simon Nicholas Associates to strengthen its presence in the industrial sector. Additionally, 21% (seven deals) of trade transactions involved overseas buyers entering the UK market.

The number of debt or non-PE backed management buyouts (MBOs), employee ownership trusts (EOTs), and acquisitions by private individuals declined from eight in 2023 to six in 2024. Notable deals included the Nu-Staff MBO in Q3 and Hoop Recruitment’s EOT transition in Q4. Despite higher interest rates and inflation making financing more difficult in 2024, MBOs and EOTs remained viable options for founders looking to transfer ownership to management. Recent changes in tax regulations and the introduction of more stringent conditions for EOTs have also added complexity and potential costs to these transactions.

Recruitment firms pursue strategic acquisitions to increase scale (and valuation attractiveness), enhance market position and improve operational efficiency. These acquisitions often occur before an exit or partial exit, such as Morson Group’s acquisition of InterQuest Group ahead of its sale to Onex PE, and Operam Education Group’s acquisition of Horizon Teachers before Three Hills Capital’s investment.

PE focus areas

In 2024, PE maintained a significant presence in the technology, healthcare, and education sectors, which together accounted for 63% of PE transactions, including recruitment platforms and software.

This is a slight decrease from around 75% in 2023 but is similar to the mix in 2022. The reduction is due to the slowdown in the healthcare and education staffing boom seen in 2023, driven by staff shortages in these sectors. Pressures from the public sector to reduce reliance on agency labour, and the UK government election in 2024, increased uncertainty within the healthcare and education markets.

Despite a slight reduction in interest in healthcare and education sectors, PE still values long-term potential and ESG metrics. In Q4, BGF sold its stake in Operam Education Group to Three Hills Capital’s Impact Fund, achieving a 2.5x return on their investment. 

Shift to professional services as key vertical

Professional services led the market in 2024, representing 19% of total deal volume with 12 transactions. PE interest in professional services increased, with five deals recorded in 2024, compared to just one in 2023, aligning with PE appetite for this sector generally, for example, with consolidation in the accounting sector. 

This trend was mirrored by trade buyers, who completed six acquisitions in the sector in 2024. Recruitment firms specialising in financial and legal sectors were particularly attractive, representing 42% (5 out of 12) of professional services deals. Key transactions included the acquisition of Clayton Legal by Bluestones Group and Ignata Finance by ZRG Partners. 

Interest in multi-sector recruitment firms

Another significant trend in 2024 was the heightened interest in diversified, multi-sector recruitment firms, which accounted for 16% (10 deals) of total transactions. These firms offer lower investment risks for acquirers during uncertain times. A notable example is Bluestones’ acquisition of Dynamite Recruitment in Q4, a firm offering recruitment services across commercial, retail, technical, and financial services sectors. Bluestones continued to diversify its portfolio by acquiring firms across various recruitment sub-sectors and expanding internationally throughout the year.

Excluding EOTs and MBOs from our analysis, the proportion of overseas buyers of UK assets increased. The share rose from 26% (13 of 50 deals) in 2023 to 28% (16 deals) in 2024.

An important factor contributing to this increase was the sharp rise in interest from US buyers. In 2024, US buyers accounted for nine deals, compared to just two in 2023. This level of interest is closer to the 2022 figures, where US buyers acquired 12 UK assets.

In contrast, European buyers showed a decline in activity, with only four deals in 2024, down from nine in 2023. The 2024 deals came from France (two deals), Ireland (one deal), and Germany (one deal). Ongoing economic challenges in Europe, including inflation, high interest rates and slow growth, have made investors more cautious. Furthermore, political uncertainties within the EU, together with vulnerabilities in the UK market, may have deterred European investors.

Beyond the US and Europe, there were also deals from buyers in India, China, and Canada (one deal each).

Interest from overseas PE buyers notably increased, with nine transactions completed in 2024, compared to four in the previous year. Conversely, overseas trade interest saw a slight decline, with transactions decreasing from nine in 2023 to seven in 2024.

In 2024, UK recruitment firms completed 14 overseas acquisitions, a decrease from 21 in the previous year.

The US remained the largest target geography, accounting for six deals (43%), although this was a decline from 11 acquisitions (52%) in 2023. Trade tensions, particularly between the US and China, have contributed to an uncertain investment climate, leading to increased caution among UK investors regarding commitments to the US market.

Germany and the Netherlands emerged as the next most popular target geographies, each with two completed transactions. Additionally, acquisitions were made in Norway, Denmark, South Africa, and France.