BlogBrexit: Market Interruption but not Armageddon for Recruitment M&A

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A report today in Recruiter reports that whether the UK remains as part of the single European market in the wake of the vote to leave the EU will have considerable impact on the state of mergers & acquisitions in the recruitment industry, a leading M&A player has predicted.

For the next three months, the UK’s M&A market is likely to experience “significant interruption” but should experience “no damage” in the medium-to-long term, Jonathan Wright, a co-founder of the newly created M&A advisory firm Elite Capital Partners, told Recruiter on Tuesday.

“I see this as a market interruption, not Armageddon,” Wright said. “But I see the one big fundamental issues as, do we go it alone or negotiate to become part of a single market? If we must trade under the World Trade Organization, that’s a big unknown.”

Elsewhere in UK recruitment industry M&A, participants confirm that a period of ‘wait and see’ that delayed the progression of M&A deals generally before last Thursday’s referendum is continuing as the fog around the country’s future direction shows no sign of dissipating.

“There was a bit of a slowdown before the referendum, particularly where larger projects were at stake overseas and in the EU,” said James Fieldhouse, corporate finance assistant director – corporate finance M&A at M&A advisory firm BDO. “I think the period of flux will continue; if you were waiting before, you’ll continue to wait and put off investing in projects.”

The overall picture is not bleak, however. Fieldhouse told Recruiter he was aware of deals in the works that had been put on ice, yet “the investors were still interested and wanted to proceed” at some point. For potential overseas buyers of UK businesses, sales may “possibly be helped in the short term by the devaluation of sterling”, which would make the firm a less expensive purchase, Fieldhouse noted.

Even within the UK, he added, there remains “£50bn of dry powder” at the moment in private equity coffers that is waiting to be spent.

While much of what happens economically in the UK will depend on how the UK itself manages the Brexit, there is also the unknown surrounding steps to be taken by the EU against the UK.

Tim Stead, partner and M&A specialist at law firm Squire Patton Boggs, told Recruiter: “The longer-term impact of a Brexit is quite unpredictable because … no one can actually forecast how the rest of Europe (and the wider world) will behave once we have settled into the ‘new normal’.”

Stead went on to say: “That said, even if the UK does ultimately leave the EU, recruitment businesses in certain sectors will not be directly affected, and we would expect quality recruitment businesses to remain attractive as acquisition targets, both to strategic buyers and to private equity.”

He said his firm expects to see activity “in the mid-market and lower mid-market remain relatively strong”, although he acknowledged “there may be delay in some processes starting until after the summer”.

He added: “Businesses with significant exposure to Europe may delay processes longer until the currency impact has become more certain.”

Hamish Perry, partner at Charles Russell Speechlys, took a dimmer view of the UK’s overall M&A market. “All M&A in all sectors are looking a bit ropey at the moment,” he told Recruiter. “A number of deals were put on ice before [the vote], and I suspect they won’t be rushing back anytime soon.”

Taking a brighter position, Elite Capital Partners’ Wright predicted that public sector recruiters will probably experience “no difference, in terms of appetite” but potential buyers may wait until business prices drop further.

Also, he said, there will still be appetites for businesses “that trade in commercial markets, maybe to Asia and the US, but not to Europe”.

However, Wright said financial services and banking recruitment firms “are the ones in most difficulty if they are going for a sell”.

He echoed BDO’s Fieldhouse’s sentiments about the private equity coffers, saying: “They are stuffed with cash. They will have to spend money, but it may be toward the winter or early next year.”

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