With the backdrop of recent political and economic uncertainty, and the numerous headlines generated, one sector that has certainly seen an uptick is the Scottish recruitment market.
Companies across a range of sectors have been seeking to hire temporary staff to cover current demand or recruit specialist project expertise.
Given the current flux in the economy, and with the Brexit deadline of 31 October fast approaching, it is understandable for businesses to want to err on the side of caution and service current orders with agency staff as opposed to committing to increasing their headcount with full or part-time employees.
This consensus was confirmed in a recent report published by the Royal Bank of Scotland which found that demand for temporary workers had increased significantly in July of this year while the appointment of permanent staff fell for the first time in more than two and a half years.
This has led to an increase in trading performance generally across recruitment companies, many of which have been faced with challenging market conditions, particularly those specialising in the provision of talent to the energy sector. Companies in that space are seeing an increase in demand as the exploration and production sector recovers.
With an improvement in trading and better visibility of future revenues, there is a sense that transactions in the recruitment space will increase as strategic acquirers purchase specialist firms in order to grow or diversify their own service offerings, grow their geographical footprint or gain instant access to key clients. In the year so far, there have been some notable examples involving Scottish-based recruitment firms:
- The sale of Aberdeen-based technical recruitment company Brander to the Dutch-headquartered Atlas Professionals. The transaction, which was announced in January, complemented the Atlas growth strategy to expand the capabilities inherited from the acquisition of Programmed Marine in 2017 in the drilling and offshore, engineering, decommissioning and renewables markets.
- The acquisition of RZ Group (formerly Recruitment Zone) by Outsource UK in April gives the buyer a Scottish presence and increases its headcount to more than 100 staff. A key highlight of the deal was the cultural fit between the business, which is paramount given the nature of recruitment companies.
- Edinburgh-centric Taranata Group, acquiring London-based outsourcing and IT consultancy firm Hanya Partners. The transaction formed part of Taranata’s founder Paul Atkinson’s ambition of £100 million revenue for the Group by 2020.
In what appears to be a rising tide for the Scottish recruitment market, it seems that there are further opportunities for consolidation as acquirers continue to meet their own strategic objectives. As people-dominated businesses, there are five key items specific to recruitment companies that should be considered when looking to increase value to make them attractive to acquisitive players:
As a business owner, having and creating a succession plan to meet your own objectives and timetable is key, unless there is a desire to remain with the company as part of the enlarged group. An interested party is likely to focus on where the current owner or owners envisage the potential growth of the business, and their own individual intentions, so it is important to have a plan and review it regularly.
Demonstrating that there is a robust management team delivering the plan and effectively managing all aspects of the business will drive value to an acquirer. In most instances, the management team will hold the key client relationships, so providing comfort to a purchaser that the management team and client relationships will remain post-completion is vital.
Nurturing a niche service offering, together with creating a strong reputation and brand in a specialist market, is more likely to attract interest from potential acquirers as proven in the recent examples. It is also common for such businesses to attract a higher price, especially if competitive tension can be created between acquirers seeking to expand into new markets to complement their existing business rather than purchasing generalists to increase volume.
IT and database systems
Continual investment in a secure IT infrastructure and database will provide greater opportunities to scale the business, either as a standalone or as part of a larger group. Efficiently identifying suitable candidates for each
job, by required qualifications or experience, will add value by reducing exposure – knowledge is retained with the staff.
Compliance and security
Recent changes to legislation in the form of General Data Protection Regulation (GDPR), the proposed changes to the off-payroll reform (IR35) to large and medium-sized private sector businesses, and increasing complications of trading overseas as companies follow work in new geographies have impacted on the sector. Demonstrating a proactive approach to compliance, and protection against potential cyber security threats, will be critical for a successful transaction.
This is an exciting and positive time for the Scottish recruitment market, and we can anticipate further deals to flow as active buyers seek to continue to undertake acquisitions to achieve their strategic goals.
That said, business owners should be vigilant to the increasing scrutiny placed on the various industry and statutory compliance requirements as this will be a key part of negotiations.
Callum Gray is director and head of deal origination, corporate finance, at Anderson Anderson & Brown