With around half of UK firms contemplating job cuts, according to a British Chambers of Commerce survey, recruitment might appear to be just about the worst sector to be involved in right now.
Not so, says one broker with considerable experience of selling recruitment businesses. The contraction of the global economy has affected various firms in different ways and to varying degrees, depending on which sectors they recruit for and how much temporary recruitment they undertake.
“It depends what the definition of recruitment is. Certainly there is a significant increase in unemployment, but to an extent the temp market takes advantage of that,” says Kevin Uphill, Avondale founder and MD, who is currently trying to sell a supply teacher firm.
You have big companies reducing headcount significantly, but they drop too far and have to take people on again
Kevin Uphill, Avondale founder and MD
“You have big companies reducing headcount significantly, but they drop too far and have to take people on.”
“Even with professional recruitment, big companies are cutting staff, but it’s not necessarily a bad time,” insists Uphill. “Take IT recruitment. I know someone who works closely with HSBC, and they say that their IT department hasn’t seen cutbacks.
“If you reduce headcount, what do you need? Better systems – and if you need them, you need IT.”
Such anecdotal evidence is backed up by statistics from the IT Jobs Board, showing that IT recruitment is bucking the trend and showing positive signs of long-term growth.
“Permanencies are, of course, generally down,” admits Uphill, “which has impacted on many firms.” The rate of decline in permanent recruitment accelerated in July, but contraction in temporary recruitment eased to its slowest rate in 10 months, according to figures released by the Recruitment and Employment Confederation (REC) and KPMG.
Still active
“Ordinarily,” says Uphill, “Avondale tends to sell three or four such businesses a year. This year has yielded two sales, with a few others on the horizon.
A couple of vendors have said they want to hold off as the prices aren’t there. But things are still happening; it’s not been hit as badly as some sectors, like construction for example.”
If some businesses have lost value, it’s not necessarily deterring owners from selling. “We had a permanent recruitment firm specialising in Treasury staff, and they’ve dropped in value by about half,” admits Uphill.
“But the owners accepted that was the new value and said ‘let’s just get on with it’.” And anyway, he adds, business values haven’t dropped as precipitously as property or equities.
Any losses that are sustained from a sale in a depressed market can be offset by immediately reinvesting the funds into a further acquisition. “It’s always contextual,” says Uphill, before deploying a property analogy: “If your house was worth £1 million, but is now worth £800,000, it doesn’t matter if the house you wanted down the road has dropped by the same ratio.
“If you want to move to a bigger one, then can you afford to do it? That’s the important question.”
So aspirant retirees and businesses whose revenues have been badly hit by the downturn are holding tight for a recovery, but many other sellers are happy to sell despite the adverse trading conditions.
“So deals are still being done,” insists Uphill, although deal structures have changed. “You’re getting a lot more deferred payments, and this applies across all sectors.
“The banks were looking at 3/3.5 times cash flow and they’re now 2/2.5, and that’s dropped so far people think they may as well keep their business.”
Deferred payments have bridged the gap created by a dearth of bank funding, albeit the risk is transferred from buyer to seller.
“Values haven’t dropped greatly for sellers, but they’re waiting a bit longer for their money – and of course with that comes more risk.”
