Towards the back end of 2019 and as we entered 2020, the majority of UK manpower and recruitment (“MPR”) businesses were firmly focussed on ensuring their business models were Brexit ready. However, as 2020 unfolded, and the impact of COVID-19 shook the global economy, attention quickly turned to resilience, cash flow management and damage limitation to ensure survival and for businesses to come out of the other side of the pandemic.
Market Indicators – Signs of positivity
From a trading standpoint, business models and general resilience have been more than tested throughout 2020, with year to date September figures illustrating a 33% reduction in permanent vacancies and a 15% decrease in contract vacancies (APSCO).
Whilst these figures show some softening in the market the 17% increase in total placements in the month of September will provide some encouragement to the sector. The overarching view is that trading will have softened across the manpower sector in the year, however whilst this may be true at a sector level sub-sectors such as technology have seen an uplift in employee demand, with IT roles understood to account for almost one third of UK vacancies.
IR35 – Second chance to get ahead of the game
In addition to the pandemic and Brexit, many MPR firms also had to contend with the changes to the legislation regarding the treatment for off payroll workers (IR35), albeit the implementation of this was delayed by a year to 6 April 2021. The changes will see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker.
For companies preparing to restart the process of determining their contractor workforce’s IR35 status, it emphasises the importance of making individual assessments that examine the contract and the reality of the worker’s day-to-day engagement and ensuring the time required to do this is built into the IR35 project plan.
Many businesses had proactively sought advice to meet the original 6 April 2020 deadline with the extension allowing for some to continue to review their options and/or finalise action plans which may not have met the original deadline.
Furlough – A lifeline but will be checked
The support measures provided by the UK Government have gone a long way to help, with the Coronavirus Job Retention Scheme (CJRS) being vital for many MPR businesses since its rollout on 26th March.
Interestingly, this saw a flood of enquiries from clients with regards to the treatment of certain workers and their eligibility for the scheme whilst those MPR businesses which offer HR services also experiencing increased demand as clients sought advice in relation to right sizing their businesses and the people challenges that inevitably come with that.
At the time of writing, the CJRS has been extended to March 2021. However, it has been interesting to note that HMRC have stated their intentions to conduct risk-based audits to review furlough reclaims and that this work will go on for the next five years, outside the normal cycle of employer compliance reviews.
Transactions – movers and shakers
Having worked with a number of acquirers in the sector the standout point which has been consistent throughout discussions has been the acquirers focus on the strategic value that an acquisition would bring as management teams actively pursue their company’s long term strategy, rather than simply seeking opportunistic deals. Notable examples being Global Energy Group’s recently announced acquisition of Cammach Recruitment, a transaction which AAB initiated, and Private equity backed Learning Curve’s acquisition of County Durham based Acorn Training, from competitor Babington.
Certain investors of MPR businesses are choosing consolidation as the most appropriate option to secure the future of portfolio companies, with one of the most high-profile examples of consolidation being the merger of Fircroft and NES Global Talent to create NES Fircroft which was announced in September.
Looking to 2021
With the recent roll out of the first vaccinations taking place there is a sense of optimism that the economy will take baby steps in the right direction which in turn is expected to drive increased levels of staffing requirements particularly for temporary placements as businesses seek to meet demand before committing to permanent placements.
In terms of transaction activity, and based on our current pipeline, we expect to see continued levels of activity in the sector as there is an appetite from strategic acquirers to ready themselves for the expected growth together with opportunities for management teams to acquire business with some investors seeing the current time as an opportune moment to hand over the reins.
You can find out more about AAB's MPR team, and how they are helping businesses within the sector, here.