Adverse conditions lead to drop in recruitment M&A

M&A activity in the UK’s recruitment industry fell last year, as dealmaking was hit by rising costs, widespread uncertainty and an unfavourable economic climate. The drop comes during a period of change for the sector, which is being reshaped by innovations in AI, data and analytics.

According to BDO’s Recruitment M&A Annual Report for 2025, there were 97 transactions in the UK recruitment sector last year, a fall of 10 per cent compared to the 107 deals recorded in 2024. This occurred amid a wider 5 per cent drop in overall UK dealmaking.

While private equity has been a key driver of M&A in the recruitment industry over recent years, the report found that private equity firms were involved in just 8 per cent of all deals in the sector last year, compared to 17 per cent in 2024.

The majority of deals (62 per cent) involved trade buyers, while venture capital investors accounted for 14 per cent of transactions. Geographically, 13 per cent of deals involved international buyers, down from 20 per cent the year prior, bucking a trend that defined the broader UK M&A market in 2025.

According to BDO, the most prominent subsectors of the recruitment industry for dealmaking in 2025 were the generalist, recruitment platform/software and IT markets. Recruitment platform/software deals proved particularly popular with venture capital buyers, accounting for 92 per cent of such deals, and also represented 53 per cent of deals involving overseas buyers or targets.

BDO M&A Partner James Fieldhouse described the recruitment sector as going through a period of stabilisation at the outset of 2026, saying that employers were increasingly focused on strategically filling critical roles, with less emphasis being placed on volume recruitment.

Fieldhouse identified areas including digital and AI, advanced engineering, green energy and healthcare as subsectors that are expected to see higher demand.

BDO stated that trends such as AI, analytics and data were reshaping the broader industry at an unprecedented pace. Partner and UK Lead for Data, Analytics and AI Catherine Wilks said that the firm had observed a growing adoption within the sector of AI-based matching engines that connect employers with candidates based on factors including market demand, behavioural attributes and real-time skills.

According to Wilks, such engines are increasingly outperforming traditional CV processes, while adding that such tools are also being used to generate predictive insights that help recruiters to spot emerging skills gaps, forecast labour shortages and dig deeper into the factors behind wage pressures.

Despite the significant drop in recruitment M&A in 2025, BDO has said that it expects M&A activity in the sector to increase this year, with an increase in private equity investment anticipated.

Read more about the expected increase in private equity dealmaking this year

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