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.
"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."
If you want to buy a recruitment agency, says Uphill, there are "huge opportunities" arising from the greater availability of vendor loans and "they sense this. Sellers are flexible and will accept that kind of deal structure, which means buyers don't have to be beholden to banks.
"So they can work out the cash flow, use the profits to pay for it and do some deals."
Just as buyers have started emerging in the property market where prices have fallen by up to 25%, suggests Uphill, acquisitive companies and entrepreneurs might now see now as an opportunistic time to buy.
"In fact, the long-term yield is even better with businesses than property. You could buy a temp agency whose profits are a little low on a deferred payment, consolidate it, sit and wait, and when things recover you get yourself a nice return."
That stealthy buyers are circling is not something sellers are necessarily aware of.
"We've had sellers who say they're not ready to look at deals because profits are a little low, even though good companies are still selling very strongly, albeit with a slightly different deal structure. The perception from sellers is that there are no buyers out there, but the absolute opposite is true."
Nevertheless, some ordinarily acquisitive companies are preoccupied with other matters. "There's a sense that some firms are having to sort their own houses out, so aren't necessarily rushing around the acquisition trail as they should be.
"You get this with fast-growing companies whose income is down. They need to restructure and there may be redundancies, so it's not a great time for acquisitions."
While some major players are distracted there could be openings for investors with no present interests in the sector. "There are opportunities for new people who haven't got the distraction of sorting themselves out.
"To use a property analogy, the options for property aren't good if you're already heavily in it, but if you're not in it, and you have a bit of cash in the bank, the bottom of a cycle is a great time to buy."
Even new entrants "tend to be people who understand and have a background in recruitment," says Uphill. "You need experience, or at least have a backer with experience."
But, he adds: "If you've got the right target business, if you look closely at the team and it has the right man at the top, there are opportunities for a financial investor. We did a deal last year with a private equity company with a good number two, and this year we have a £35m-turnover company trying to reach £100m and float.
"Again, the current market could be more suited to an outsider than people already in the industry, so long as they have access to good experience."
Do businesses in other sectors ever buy recruitment agencies? "We've had training businesses, for example, but again, it tends to be buyers with a recruitment background."
A partner with sectoral experience will be aware of the importance of people management.
"Depending on how you look at it, they're either your greatest asset or your greatest enemy," reflects Uphill. "You should only go into recruitment if you understand and know how to manage people, and can put systems in place to motivate and galvanise staff.
If you can't do that, stay well clear. It's a people-orientated business where you have to nurture, cajole and encourage." Herein lays a major worry for investors: the "intangibility" of a recruitment business's principle assets - its staff and clients.
"You're buying people," explains Uphill, crystallising the problem succinctly. "You have to look very hard at the people" before you make your purchase.
If its major assets are difficult to measure, then at least maintaining a steady cash flow is easier than in many sectors, so long as they have a significant number of temps on the books - "which most agencies do. They can leverage against their temps, which means they can do factoring and invoice discounting."
There's also plenty of scope for a rapid, substantial return on investment. "They're very easily scalable, although that depends on the sector," concedes Uphill.
"I've got an IT recruitment client who really struggles to get good personnel, because you can't just home-grow them, whereas in office-based recruitment it's easier to find and train people. The IT client complains of a lack of quality salespeople, but in theory, if you can get the right salesperson and train them up, within six months they'll be bringing in revenue without any extra investment in premises or marketing.
"Yes, your employees are an intangible asset, but they provide great scalability."
Your ambitions are less constrained than in many other industries. "In terms of market size, you're as good as you want to be," insists Uphill.
"In some sectors there are only so many deals being done, but recruitment is a very big pond, and if you're good, then it's all to play for." Recruitment businesses meet three crucial criteria for a shrewd investment: there are effective ways to promote liquidity and therefore stability, they're structurally conducive to rapid growth, and becoming a market leader is a realistic aim for new entrants.
"You can buy cheap and grow fast. And you can buy good cash flow, sustainability and the ability to forecast revenues - which banks like."
Just as new entrants can grow quickly, the recruitment sector as a whole has burgeoned in the past couple of decades. An increasingly globalised labour market, mobile workforce and proliferating employment regulations has made the outsourcing of recruitment increasingly desirable.
Does Kevin Uphill ever envisage a counter trend where organisations try and regain control of their own recruitment? "The minimum wage market will always be temp-based.
"We have a client which does hospital porters, cleaners and so on. The NHS is forever trying to take recruitment of such workers in-house but the nature of the workforce is such that they never do.
"You've got to be careful of the immigration issue; they haven't got the admin set up to deal with that. It's a very mobile workforce, so to have them on permanent contracts is a waste of everyone's time."
Hasn't the internet given firms a cost-effective way of cutting out the middleman and taking recruitment in house? Uphill is unequivocal about this.
"They said Right Move would be the death of estate agents, but it's had the opposite effect. I would try and use Monster and other job boards, but it's no substitute."
Explaining why, he adds: "I think recruitment is an intuitive business. It's about narrowing the candidates, dealing with them, having those contacts, and then spotting the match - and no computer can do that, certainly at the high end."