Recruitment Down Under: The APSCo Australia Podcast
Welcome to Recruitment Down Under: The APSCo Australia Podcast. We’re the podcast for the Australian recruitment market, sharing anecdotes, interviews and ideas from the recruitment industry's best and brightest. Join us for regular episodes where our guests discuss the topics that affect you and your recruitment business.
Recruitment Down Under: The APSCo Australia Podcast
Deal Makers: M&A in the Australian staffing and recruitment market
Join Paul Masters from Sovereign Private and Lesley Horsburgh from APSCo Australia as they unpack the big moves in professional staffing M&A.
Each month, we'll be diving into what's happening in the market - who's buying and where the deals are landing, how to get your business exit ready and the standout deals catching Paul's eye.
Listen in to our first Deal Makers episode here via Recruitment Down Under - or watch the video podcast here
Welcome to Dealmakers. Join Paul Masters from Sovereign Private and Lesley Horsburgh from APSCO Australia as they unpack the big moves in professional staffing M&A. Each month we dive into what's happening in the market who's buying and where the deals are landing, how to get your business exit ready and the standout deals catching Paul's eye Fast, focused and full of insight. This is Dealmakers. Let's get into it.
Speaker 2:According to the latest analysis done by staffing industry analysts in November 2024, the Australian staffing market had revenue of 46 billion Australian dollars in 2023. In 2023. That's more than Singapore, India, Malaysia, Hong Kong, Indonesia, New Zealand, Philippines, South.
Speaker 3:Korea, Taiwan, Thailand and Vietnam combined. Wow, that is quite a statistic there, Paul. I would imagine there would be a lot of people tuned in today that may not have been aware of that.
Speaker 2:No, it is a massive market In the APAC region. We are only second to Japan. We are bigger than China and, obviously, all the other countries that I mentioned before, and people just don't realise how big we actually are.
Speaker 3:Which, I guess, brings us to the very reason why we are doing this podcast, this new series Dealmakers, that we're doing with yourself, paul, on a monthly basis, and the idea behind this is that we're going to provide some regular commentary and market analysis around the M&A market in Australia, across stuffing. But before we dig into some of the detail and look at some of the topics we want to go over today, could you tell us, for the benefit of our listeners, paul, a little bit more about yourself and your background and involvement in the M&A market in Australia?
Speaker 2:Yeah, absolutely, and thank you for the opportunity to do this podcast. I think it's something that I often get asked about. Is there an opportunity to hear more about the M&A side of our business? Just a little bit of background about Sovereign Private of our business. Just a little bit of background about Sovereign Private. I'm a managing director of Sovereign Private. We're a firm that provides accounting, tax and CFO and M&A services to the staffing and recruitment industry. It is our focus industry and we spend all our time with clients throughout Australia and sometimes New Zealand as well, providing advice from an accounting, tax and M&A perspective. And my predominant focus over the last, particularly over the last four years and since COVID, has been M&A and yeah, that's what we're here to talk about today.
Speaker 3:Fantastic. So, as I said earlier, paul, we're going to obviously have a podcast for our members and the broader stuffing market in Australia to listen into every month, and each month we're going to tackle perhaps a different aspect or topic that sits under the M&A umbrella. But I thought the first place to start would be actually taking a step back and if we could have or we could give our listeners a little bit of a recap over the M&A market and what that looked like probably post COVID, if that's okay.
Speaker 2:Yeah, yeah, absolutely, and it's been. I suppose it's been a little bit of a roller coaster. We came out of COVID with a boom in M&A. We myself, sovereign represented four agencies pretty much straight out of the blocks in 2022. We did the finite deal to Randstad, which I'll talk a little bit more about. Launch recruitment we sold to a Japanese company called Geeks ACR World, which we sold to Mawson in the UK, and Paragon, which was an all-Australian deal which they were purchased by people in, so it was a big 2024.
Speaker 2:There were some other deals in the market as well, and I suppose it was a couple of things that we'll talk a little bit more about as we go through the podcast.
Speaker 2:But I suppose you know, leading from 2022 into 23 and 24 and where we are today, the market has slowed a lot and I think when I talk about the market, I'm talking about the M&A market, but I'm also obviously talking about the recruitment and staffing market as well, and the deal flow has come off. A lot has come off a lot. We only did one deal last year, which was four quarters sale to another Japanese business called Matching Services Japan or MS Japan, and you know that was one of the few deals done in the market in 2024. There wasn't a huge amount done in the market in 2024. There wasn't a huge amount done and 2025 to date has been as quiet as that period after four quarters as well. So it has been a challenging time, but there are reasons as to why that has happened, which we'll talk a little bit more about it as we go on in the podcast.
Speaker 3:Yeah, yeah. So that I mean, as you said, it's a pretty sharp decline. Is it lack of bias?
Speaker 2:You know you'd think that that instantly, think that was the uh, that was the reason, but no, it's, it's, it's actually a reflection of the performance of the market, uh, since 2023. I, I think, look, the companies that that that sold uh in in 2022 and and sort of into the early part of 23 were. You know they had fantastic results and you know, we know how strong the results were post-COVID, particularly with. You know, particularly with Perm and it's. You know that has tapered off a lot Because that's tapered off. And you know we look at the FY22 numbers, we look at FY23 and they're relatively strong. You know we saw a fall or a flat line. If you're flat lining, you were probably doing okay. If it was a fall, you weren't in the minority.
Speaker 2:It's been a tough time and because the results have fallen in 2024 and into 2025, there's been less deals because less agency owners are willing to sell at A a lower EBITDA for the current year and B a lower multiple. When you've got businesses going backwards, you cannot get the multiples that we previously saw in 2022. It just who's going to pay. You know, a six or a seven or an eight times multiple for a business going backwards, yeah, and that's what we've faced. We've faced a disparity between the valuations that the buyers, you know, are willing to pay and what the sellers, because sellers, they want to go back to the FY22 numbers oh yeah, yeah. Or they want to go back to the FY22 numbers oh yeah, yeah. Or they want to do some sort of average. Can we, you know, can we average it out? Or you know, and unfortunately, valuations and methodologies don't work like that. So, you know, that's the main reason, and we'll talk a little bit more about the buyer market. There's, there's not a there's not a lack of buyers. There's buyers out there today.
Speaker 3:Yeah, we just don't have the businesses performing at the level where owners are willing to sell before I ask you about those buyers particularly, I wanted to ask, with the current market conditions that you know as we know, it's been fairly protracted it's been 18 months now of fairly challenging conditions Does that in itself create more desire for people to get out and sell? Is that bubbling under the surface and do you think that's going to explode, or is?
Speaker 3:it really down to value and then knowing that they're not going to get the I, I think, I think it.
Speaker 2:I think it's probably the, the, the, the ladder people, the, the majority of owners do not want to sell if they know the, the capabilities of the business are significantly more than what they're achieving today, and as much as people, you know as much as owners are tired and you know if they've been doing, you know, recruitment for the last 20 years.
Speaker 2:You know, I'm sure, and you know they've been through the cycles. You know recruitment and for the last 20 years, you know, I'm sure, and you know they've been through the cycles, you know they would have seen it in the GFC and it's. You know it's tough and I've heard a lot of people say this is worse than the GFC and you know they've never seen it this bad and you know they've never seen it this bad and I think it's. Most owners do not want to get out on a low and you know if that's something that comes out of this podcast you know, as a business owner, you should be looking to sell when you're on a high, not a low. You're not going to get the valuation that you're looking for.
Speaker 3:Yeah, absolutely so. The buyers that you talk of. There's obviously plenty of them. Who are they? Where are they from? Are they all overseas? What do they look like?
Speaker 2:Yeah, look, it's a combination. There are buyers in Australia and I think it's not only the main buyers in Australia are the larger businesses here. There's also private equity that we've seen entering the market and private equity has been traditionally they've shied away from most sectors. But there is an interest in healthcare. Anything that's cyclically resilient, private equity is going to be interested in. Anything that's cyclically resilient private equity is going to be interested in. And you know if we had a, you know if you've got an agency in healthcare, education, life sciences anything that's considered to be cyclically resilient, private equity is interested in it. So that's sort of the Australian space, private equities interested in it. So that's sort of the Australian space. Then we've got from an international perspective. We've still got very strong interest from Japan and the Japanese economy is still doing fairly well and a lot of agencies in Japan feel that their market is quite saturated in Japan. And when I talk about Japan I'm not so much talking about, you know, recruit persol. You know outsourcing, will group. You know the guys that have been here for that have been in Australia for a while. I'm more talking about that second layer down and you know that's when I spoke about the, the four quarters deal selling to matching services, japan. That is a good example of one of those japanese businesses that is in that next batch of um of companies in japan. And you know they're they're they're in japan. They're considered to be small but most of them have market caps of the equivalent of a billion Australian dollars. So they're reasonable size. Normally they're very cashed up on their balance sheet. They can definitely afford Australian companies.
Speaker 2:Australia is considered to be a good test for Japanese companies looking at international expansion. Australia is considered yeah, and I get asked that a lot why Australia? Why do all these Japanese companies look at Australia? And there are a number of reasons. They see Australia as having strong governance, so they feel it's a safe place to invest. It's a good time zone and from the perspective of size you know it comes back to the original statement that I made From a size perspective it's big enough to have meaning and they can actually get decent market share in Australia, but it's not too big that it will break the bank. So if they're to enter Europe or the US they have to go in big.
Speaker 2:And you know, traditionally what they're looking for is companies with EBITs between anywhere sort of from $3 million to maybe $10, $12 million. You know that's the max and you know that's a big part of our market, but it's. You know. They see Australia as, yeah, those three things they're, you know, strong governance, good time zone, big enough to have meaning. And the fourth thing is they love Australia. So you know they, you know Japanese, do really enjoy coming to Australia.
Speaker 2:So it is considered to be an attractive destination to expand, particularly in that first leap overseas and MS Japan is a good example of that and Geeks that I spoke about, who were the acquirer of launch, that was their first forte overseas as well. So we've focused a lot of energy on japan, outside japan, outside the. Looking at the other regions, um, we, we still have interest from, from europe, uh, the it has picked up over the, over the last, over the last 12 months, and uh, and when I say europe, obviously including the uk as well and and it's, it's uh that that interest is, is is way stronger today than it was, say, two years ago. So so we are, we. I think you know europe went off the grid in terms of acquisitions when, uh, the war started, um, in in ukraine, it definitely, it definitely did, did, did put some nervousness into the market in Europe and we saw a lot of European buyers that were looking at Australia revise their acquisition strategies and look more internally into their own country or Europe in general.
Speaker 3:And do you think drivers for European firms, paul, are the same as the Japanese cohort in terms of you know our governance and you know likability? It's a similar.
Speaker 2:They do. The only the obvious, you know, which is sort of the flip side of Japan, is staffing businesses. You see that they have this strategy. Most of them have a strategy where they look in Europe, then they go to the US, and it's normally North America, to the US and it's normally North America, and then they look at South America thereafter and then they look at Australia and APAC. They may look at Japan, but Japan is tough because it's obviously you and we find this as well when we're working on the sales side of deals. You know very few people speak English and it is challenging to do deals in Japan. So yeah, european buyers tend to look at Australia as sort of the last piece in their international puzzle, which you know, not so much the UK. The UK sees Australia as very, very similar, but the rest of Europe, it's very much the last piece of their acquisition strategy.
Speaker 3:Which makes sense really, particularly when you look at. You know our margins in comparison, say, to the US, you know the tyranny of distance and you know obviously a lot of governance here as well, and compliance.
Speaker 2:Absolutely. And that's why we see very few deals done with US companies acquiring Australian companies. It's, you know, I think, the last look there may have been a few. If you look at the staffing industry analyst reports it shows some US deals, but if you dig deeper they're all in recruitment and staffing technology. They're not in actual recruitment and staffing. You know traditional recruitment. So I think the last deal we saw was probably a legious acquisition of talent too.
Speaker 2:You know that would go back to gee, it must be. I was just thinking when was that? Over 10 years ago, yeah, yeah, it would have to be over 10 years ago. So you know that was probably the last you know decent deal done out of the US. And you know we really haven't seen it. In fact, you know there's been very few deals in North America. I can't you know Canada's the same in North America, I can't you know Canada's the same Apart from Canada. There is a link through to say I think Sanctuary was purchased by Acacium and Acacium is owned by a big Canadian private equity house called Onyx. So you know there might be sort of an indirect connection to North America, but you know direct acquisitions not a lot.
Speaker 3:So, Paul, I'm really interested to understand what it is that constitutes a great deal for a seller.
Speaker 2:Yeah, I think you will definitely get the biggest bang out of the sale process if you find a strategic buyer. And what do I mean by that? I'm talking about finding a buyer that sees your business as the missing piece in their puzzle and they they see value over and above what other acquirers see. And you know I suppose the flip side of that is a bolt-on. So you know you're not going to get the valuation or the proceeds in a sale if you're a bolt-on. And when we run a sales process it is very much about finding that strategic buyer. We want to find that one buyer somewhere on the globe that sees you as the missing piece in their puzzle, not just as a bolt-on to their business. That is the missing piece. They're getting synergies way above what you currently get out of the business. They see additional synergies.
Speaker 1:Right.
Speaker 2:Right, so you know, that's where I think you know, when I look at the deals that we've done with the Japanese, you know it's very much in that category those agencies in Japan that have made the acquisitions here. You know they do, you know pretty much exactly the same thing as the Australian agencies and they want international expansion and they want a business where they feel that they understand the type of recruitment but it has direct synergies with the Japanese business right, okay, and you've done lots of deals, um, particularly over the last, you know, three years or so.
Speaker 2:So what would you say stands out um as being, you know, some of the best the in terms of the sellers yeah, it's, I think it's, I think the you know, if I look at the Finite deal as an example, so Finite and FinExcel, that business was, you know, it's always been a fantastic business in the market. I think a lot of you know, a lot of the Australian listeners will know, of Tracy Thompson's success within the finite business. The tricky thing about that sale and they're finite for those of you overseas that might be listening is a technology business that also has a professional services side to the business as well. Professional services represents about two-thirds of the business and the IT contracting represents about a third. The hard thing about that business selling it was just the sheer size of it. It was the and this is all public information. I'm not disclosing anything that's confidential. The turnover of that business was $400 million. The turnover of that business was $400 million. It was doing an EBIT of $38 million.
Speaker 2:It was a big business, no-transcript, and and outside that it was private equity and and you know we did not want to want to go down the private equity route. We, we, we, we met with a number of private equity players, uh, but but the, the, the way private equity structure deals is very different than than what, than what tracy, um and I should mention duncan as well what they both wanted for the, for the business, and um and the, the. You know, we, we were. We were right place, right time. With Randstad, we were lucky that the global CEO had rotated off. There was a new global CEO and he'd come from Accenture. He'd come from a professional services, come from the professional services industry and was very interested in Australia looking at professional services business, and FinExcel, which was the professional services side of the finite business, was, you know, was perfect fit. It was a perfect fit. So you know, look, there is luck with these things. There was a lot of negotiation on price. There was a very short earn out. In fact, the earn out was only nine months on the deal, which suited all parties.
Speaker 2:Quite rare, though, isn't it? It is, that's very rare, and you know, it worked very well for Tracy, obviously coming off 2022,. If we'd had a longer earn out running into 23, 24, 25, it definitely wouldn't have been as successful as it was. So you know, in terms of stars aligning, that deal was fantastic. It was sold right at the peak of the market. Well, fantastic for the seller, obviously, um sold right at the peak of the market and um and it was sold prior to a downturn in the market that happened in um, you know, coming into um 23, 24, 25. So so it was it.
Speaker 2:It was a, yeah, it was a. It was a. It was a hard deal. I I'm not, I'm not going to say that it that it wasn't. We actually took the process um from green hills, which is an investment bank, and um, we ran with it, um, using a slightly different strategy than green hills, and we were you, you know we were successful, but you know these deals are tough. They don't just, you know, they don't just happen. This took, this deal took, you know, close to 12 months to complete.
Speaker 3:Wow, a bit of divine timing in there as well, by the way.
Speaker 2:Yeah, yeah, it was, it was, and you know there is luck in these deals, you know, as with life in general, yeah, yeah, you know you do have to. You know not. Things don't roll like that every time.
Speaker 3:No, I can imagine. So if you had to sort of summarise what attributes you believe are kind of present in all good deals, what would they be?
Speaker 2:I think it's you know it comes back to a few things that I've mentioned. I think you know that getting finding that strategic buyer and I think you know what I would say and you know I've obviously got a vested interest in saying this but you should get an advisor to work with you on a deal. Don't just accept when somebody knocks on the door and says, hey, I'm interested in acquiring a business. Don't just accept the first potential buyer that walks in. If you run a proper sales process and you scan the globe for that strategic buyer, normally you will find somebody that wants your business more than the guy that just knocked on the door. So you know that's probably number one. Run a process and go to market and see who's out there. Don't just think you know the market and because you've had a few in-mail messages or random calls over time, you go oh well, I know who to call. You know I'll call these people. Yes, they may be in the sales process, but extend it much further than that. How would you know this next layer of Japanese companies? You would never know. We've invested years building up a network of buy-side advisors in Japan that that that work with us. They get paid on the buy side, we get paid on the sell side. They work to find buyers in japan and, and, and you know, they take our flyer, they take our im and then they translate it to japanese. Um, so we've, you know, and we, we're the ones that facilitate that process. So that's number one. Get yourself a sell-side advisor.
Speaker 2:Number two is have your accounting tax legal governance up to scratch. There is nothing worse than starting a process and finding that there are no decent management reports. The accounts, the financial statements are incorrect, tax returns are unlodged, fbt has never been lodged, payroll tax has been calculated incorrectly. We've got an issue with ABN. You know sole traders that have been in, get you know, engaged within within the business for years. You know the, the old chestnuts that always come up in due diligence. Just make sure that you're on top of these things because they will hurt you, they, they, we. You know we've. The unfortunate thing is, you know, we. There was a deal that we worked through about 18 months ago where, unfortunately, legal governance wasn't up to scratch and the unfortunate thing was that contractors were using the wrong agreements. We had proprietary limited contractors, contractors using payg agreements, and it was, you know, it was all over the shop. So so I think, just just from a governance perspective, just make sure you are exit ready.
Speaker 2:Um, and and, and it's, it's. It's absolutely critical and that's one of the things we'll talk about in these podcasts going forward how, how do you get exit ready? What are the things you should be looking for? So we'll run through those things. And then the third thing I would say and this is absolutely critical and again we will run through these things on the podcast just be aware of the things that buyers are looking for. Do you have one client that represents 30% of your business or 40% of your business? Anything over 15% is considered to be an issue with a client concentration issue. So just little things like that. Who is your second tier of management? Do you even have a second tier of management? Who's going to take over the business when you exit? So, from an internal perspective, you've got to have these things sorted out. So they're things that we'll cover in the podcast. Look, I could go on and on and on, lesley, but there are probably three main factors that I would say are extremely important.
Speaker 3:Okay, fantastic, and, like you say, we can dig into the detail in future episodes. So, paul, just as a final point, just to wrap this first episode up, I thought it might be interesting for you to get crystal ball out and give us a little bit of a prediction about what you say is happening over the next three to six months in the Australian market.
Speaker 2:Yeah, yeah, it's a good question because it has been very slow, you know, particularly over the last 12 months. Look, the good news is we will see some activity. I personally am aware of three deals currently in play at the moment and I would expect to see over the next six months we will see some transactions that we can talk about, talk about, uh, the, but in saying that, um, the transactions that you know are in cyclically resilient um sectors in the market. So, so what we need to to see to have more deals in other sectors of the market, you know things like, like you know, technology and and building and construction and anything that's white collar we need to see confidence return back to the market. And until we see that confidence returning back to the market when I talk about the market, I'm talking about the clients, the clients of the agencies, talking about the clients, the clients of the agencies we need to see that confidence return so that the placements can pick up again.
Speaker 2:You know we can see contracting. You know projects back on the horizon. We've seen a lot of projects deferred, particularly in the technology space. So it's, you know, if we can build that confidence back up, things will certainly change. But after the announcements, the tariff announcements earlier this week, it's challenging and it'll be interesting to see how things pan out. I think when we do the next podcast it'll be interesting to see how things pan out. I think when we do the next podcast it'll be interesting to see where we sit with confidence in the market.
Speaker 3:Yeah, absolutely, and let's hope things have moved on a bit. Like you say, it's challenging and I guess it's very unpredictable. It doesn't seem to look like anything else that we've been through.
Speaker 2:No, yeah, no, that's right, it bet. Look, I, in saying that, I, you know, I think I think most agency owners would say is we, we have hit the bottom? Um, I don't, I don't think we're with, we're seeing, you know, a move down further. Most agencies are reporting, um, uh, results that are that are slightly higher than last year. That's generally what I'm seeing across the board. Obviously there are exceptions, but generally results are up a little bit from last year.
Speaker 3:Yeah, and certainly that's our understanding from member sentiment is that the confidence is returning. There is a bit more demand. I think we haven't got that steep recovery or curve in terms of that bounce back that we had perhaps in the GFC, but I think it's on the right trajectory. So hopefully the only way is up from here and, like you say, you know, the next time we meet it could, we hope, look very different.
Speaker 2:Yeah, well, let's hope so and let's you know, let's hope that these transactions in the market proceed and, yeah, that builds some confidence there as well.
Speaker 3:Yeah, absolutely. Well, I'm really looking forward to sitting down with you again next month. In the meantime, what I would like to do is obviously invite anyone that's been listening to give us their feedback, and we are hoping that we'll be able to organise for you to send in some questions. So if you've got something in particular that you'd like Paul to cover, or you wanted to ask a direct question to Paul, we can certainly do that on future episodes for you. But in the meantime, paul, thank you very much for your time and we will talk to everybody again in another month.
Speaker 2:Thanks so much, Lesley.