Scaling Profits & Enterprise Value in Recruitment: Insights from Mercury’s M&A Dinner

Mercury recently held a dinner for recruitment executives looking at the Emerging Mergers and Acquisitions (M&A) Trends to achieve higher EBITDA and Enterprise Value.Hosted at the infamous Scott’s restaurant in Mayfair, attendees engaged in peer-to-peer networking, insightful debate and world-class dining.Philip Ellis, Owner of Optima Corporate Finance kicked off the evening sharing from his experience of the current trends in recruitment and staffing M&A.

1. Despite economic challenges, M&A activity has remained robust. There are plenty of buyers out there, but perhaps a shortage of sellers due to offers being weaker than in recent years. The market outlook overall was one of cautious optimism but seeking economic stability.
2. Whilst Private Equity involvement remained, there has been a notable shift towards strategic trade buyers re-entering the market. There is also growing focus on specialist sectors within the recruitment industry, such as IT, education, and engineering.
3. A sub sector receiving strong interest given the rise of AI innovation is the recruitment technology space. Whilst clear evidence of productivity gains from leveraging AI had yet to emerge, confidence and therefore cash, was flowing into the space in anticipation.

With the much-publicised productivity benefits of AI, this led the room into a conversation around how the traditional approach to agency growth through adding heads was primed for a strong rethink and how better use of technology offered a path to a more streamlined operating model.Philip rounded off by sharing the increasing scrutiny buyers are taking into agencies existing technology and data strategies as part of their due diligence and valuations.Chris Kendrick, CEO of Mercury shared his perspective on the way to increase Enterprise Value is through transforming into a ‘tech led’ or ‘tech enabled’ business.‘Tech-Enabled’ businesses

• Use technology to enhance traditional recruitment processes but still operate with a people-led, service-based model.
• Technology supports operations but isn't the core offering.
• Recruiters remain central to candidate sourcing, relationship management, and placement.
• The focus is on efficiency, using tech to reduce admin work and speed up hiring.
• The revenue model remains placement / commission based.

‘Tech-Led’ businesses

• Use technology as the primary driver of recruitment, with automation, AI, and data science at the core of operations.
• This approach reduces reliance on people, with scalable, automated processes for sourcing, screening, matching, and onboarding.
• It also offers the opportunity to change the revenue model.

Chris spoke about how traditional recruitment and staffing businesses typically operate with thin EBITDA margins of around 5-12%, whereas tech-enabled are 12-17% EBITDA and tech-led over 25% EBITDA.As guests enjoyed their dinner, the relaxed atmosphere inspired open discussion across the entire table, with the topic of technology and AI becoming the focus. There was open sharing of what technologies were being invested in with candid opinions of what was, and wasn’t, working. Whilst opinions varied on the right and wrong use cases for its application, the consensus was that humans and AI working together is THE recipe for success.Other Key Takeaways Guests shared:“We’ve spent the last few months looking at how we can improve our processes through adopting new technology, so it was interesting listening to Phillip talk about what the attractive recruitment companies of the future are likely to look like.”“Sort out and simplify our tech stack, maintain our headcount and improve tech. We need to search for ways to maintain differentiation in a levelled-up AI world.”“The importance of our data and it’s quality is an area to improve, if we want to maximise our valuation.”“Confirmation that ‘Real AI’ in recruitment processes, as opposed to Automation is very close.”“I can’t be too complacent about the speed of change and some of the ways we may need to adapt, so I came away with quite a long to-do list.”Written by Stuart Johnson