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Contents

Gambit Corporate Finance

Established in 1992, Gambit is an independent corporate finance advisoryfirm specialising in advising private and public companies on mid-markettransactions in the UK and overseas. With offices in London and Cardiff,Gambit is widely recognised as a market leader in M&A advice in the HumanCapital sector having built up detailed industry knowledge and an enviabletrack record in deal origination and execution.www.gambitcf.com

Corporate Finance International

Gambit is the exclusive UK shareholder of CFI, a global partnership ofmiddle-market investment banks and corporate finance advisory firms. Withover 250 professionals located in 26 offices throughout the world CFImembers specialise in cross-border acquisitions, disposals, capital raising,and related services.www.thecfigroup.com

Contents Page

Executive Summary 3

Human Capital – M&A Activity Analysis 4

Human Capital Regional M&A Activity 5

Human Capital Sub-sector Trends 6

Human Capital Public Comparables 7

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The Human Capital M&A market showed resilience in Q118, withtransactions numbers remaining roughly similar. Consolidation remains akey theme in the market as larger acquirers are looking to increasemarket share and access quality candidate pools. For the rest of 2018, itwould be unsurprising to see activity in all regions increase due to thestrength of recruitment fundamentals in many key economies. TheEuropean market is awaiting clarification on how trading arrangementsbetween the UK and the EU will work post-Brexit. Resolution of this willlead to further activity whether a deal is reached or not as many in thesector need to access both markets. Confidence in the global economyand political stability will be key to increasing cross-border transactionsas both strategic and financial investors are keen to grow market shareand geographical reach. Financial purchasers were active in Q118, and it isexpected that they will continue to invest in the sector as they are undersignificant pressure to deploy funds in the near term. Whilst stockmarkets have fallen slightly in Q118, there hasn’t been a reduction inappetite from public interest companies in acquisitions. Assets whichhave access to temporary staff in the healthcare and IT sectors continueto attract plenty of interest as those sectors continue to struggle withdemand. This is a trend that we expect to continue over the rest of 2018.The market in general is healthy and looks likely to improve over the yearwith transactions and valuations increasing. Therefore those willing totest the market, with a shortage of quality assets available, will attractinterest from both strategic and financials acquirers driving valuationshigher.

Executive SummaryIn Summary

Public interest company valuations fell slightly in Q118, however, this was more a function of widermarket factors rather than specific concerns within the Human Capital Sector. Many are still activelyseeking acquisitions in a market with a shortage of sellers which will support strong valuationmultiples for quality assets

The volume of global Human Capital transactions fell in Q118, however, the current market is stillbuoyant and it is expected that transactions will increase over the coming quarters as political andeconomic uncertainties are resolved resulting in an increase in activity from overseas acquirers. Thecurrent situation reflects the relative shortage of quality assets

UK transaction volumes remained flat in Q118 and the shortage of sellers continues to drivevaluations higher as both strategic and financial buyers compete to acquire quality assets across anumber of key sectors

The exact nature of Brexit still remains unknown with little progress in negotiations; M&A marketshave remained active and once clarification is achieved this could provide a boost to transactionvolumes particularly with the UK’s European neighbours

Employment levels remain high in the UK, both permanent and temporary placements are seeingincreasing demand which is causing concerns for some recruiters as many are unable to fill positionswith suitable candidates

The sectors with the shortest supply of labour continue to be healthcare and IT. In Q118, there wasalso increasing demand for both professional and technical staff. Those with high quality candidatepools at their disposal may well attract the attention of strategic buyers

The Gambit HC index shows that valuations have fallen in Q118 with an average valuation of 9.9xEBITDA however valuations are still higher than in Q117. We expect to see public interest companieslooking to acquire to boost trading multiples and market ratings

Geraint RowePartner, Human Capital

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Human Capital M&A Activity Analysis

Overview• M&A activity in Q118 remained stable with the number of transactions in line with previous quarters. As 2018

progresses it is likely that the number of transactions will increase due to the buoyancy in the market.• The number of transactions in the North American region increased by 24% from Q417 and this was the largest

increase of all regions. This is being driven by the levels of confidence in the US economy in particular and the strongrecruitment fundamentals.

• Whilst deal volume in the UK remained flat, confidence remains high and it is likely that transaction volumes will pickup in the coming quarters.

• Some political risks remain in key economies, however, companies are having to press on with plans now as they canno longer sit on the side-lines. Brexit is clearly having an effect on the recruitment market as EU migration hascontinued to fall in 2018, causing concern for those that operate within industries with a reliance on EU migrantlabour

• Demand for both permanent and temporary staff has increased once again and many are struggling to fill positions,placing further pressures on the temporary placements sector.

• The acquisition and retention of candidate pools will be a key strategic factor in a number of transactions in 2018.The healthcare sector is currently facing the most demand of all sectors for temporary placements as the NHScontinues to struggle with staffing.

• Financial purchasers continued to be active in Q118, however the continuing shortage of sellers means that they arestruggling to deploy capital.

Plc Consolidation

• In Q118 several UK plc’s were on the acquisition trail consolidatingexisting markets and expanding into new sub-sectors.

• Staffline Group undertook three acquisitions to increase marketshare in core markets and also expand geographic reach. Thelargest acquisition was Endeavour Group and its subsidiary VitalRecruitment who provide specialist temporary labour to numeroussectors including food, agriculture and logistics.

• InterQuest Plc acquired Albany Beck Consulting a specialist staffingand consulting firm. The strategic reasoning for the transactionwas for InterQuest to access the risk, regulatory and compliancemarkets.

Outlook for M&A Activity

▪ Even with the slight increase in interest rates in 2017,the availability of cheap debt and alternative forms offinancing remains. This will provide a boost totransaction valuations.

▪ Deals with financial purchasers fell in Q118, comparedto the previous quarter. This appears to be due to ashortage of available assets rather than reducedappetite.

▪ Public listed companies’ valuations have fallen slightlybut they are expected look to recover lost groundquickly with acquisitions seen as a key route to improvevaluations.

Dea

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Candidate Availability

• Demand for staff once again hit all time highs in Q118, with manybusinesses becoming concerned with their ability to access suitablecandidates

• Both permanent and temporary placements have increased further inQ118. The continued increase in demand for temporary staff is likely toresult in further increases in fee income for temporary providers oflabour as companies struggle to acquire skilled staff in the currentenvironment.

• Sectors that saw the largest increases in demand were IT andhealthcare. The uncertainty surrounding Brexit is particularly damagingfor the healthcare industry as many nurses and care staff are EUnationals.

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Human Capital Global M&A Activity

North America• M&A activity in North America increased

in Q118. This may have been a result ofthe improving corporate environment inthe USA.

• The employment outlook in NorthAmerica is currently positive with strongjobs numbers for the year, which isproviding a boost to the Human Capitalmarket.

• The largest increases in transactions tookplace in the general staffing andhealthcare sectors.

Europe• European activity fell slightly in Q118 with

a significant fall in cross-border activity.The UK remained the most prevalentEuropean market in Q118. Even with thelooming threat of Brexit, recruitmentfundamentals have remained strong.

• Arguably, a more pressing problem forthe UK sector now is the provision ofhigh quality candidates with recruitersstruggling to find suitable candidates forboth permanent and temporaryplacements.

Middle East & Asia• Overall transaction volumes fell in Q118

from the highs of Q417.• Once again the Japanese market was the

most active accounting for just under halfof all transactions in the region.

• As the global economy continues to growand economic fundamentals improve it isexpected that transactions will increasein the region.

UK Inbound ActivityThe UK remains one of the most active markets for Human Capitaltransactions. Cross-border activity fell in Q118 even though confidencethroughout the UK Human Capital sector is high as recruitmentfundamentals have remained strong and are expected to do so forsome time. The reduction in cross border activity is a result of ashortage of sellers and, as the Brexit deadline approaches, a ‘wait andsee’ tactic being employed by some overseas acquirers. European InJob Group acquired finance recruitment specialist Citifocus showingthe importance of the UK market to European recruiters.

UK Outbound ActivityOutbound transaction activity from UK-based companies once againfell for the second consecutive quarter in Q118, with many firmschoosing to acquire domestic targets. It is likely that UK firms overseasacquisitions pick up as firms lay plans to mitigate any effect that Brexithas on their access to talent. Another reasons for overseasacquisitions being put on hold is the potential for exchange rate riskespecially for those who have to pay deferred consideration. Whilst UKstrategic acquirers were relatively quiet interestingly the financialinvestor Inflexion backed the MBO of Netherlands based Calco GroupBV.

Outlook for M&A Activity▪ North American activity is expected to increase due to the

strength of economic and recruitment fundamentals in theregion

▪ The European market had a slower start to 2018 than somewere expecting which may well reflect ongoing political andeconomic uncertainty around Brexit negotiations. We doexpect activity levels to pick up in the coming quarters0

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Q2-2017 Q3-2017 Q4-2017 Q1-2018

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HealthcareThe number of transactions in the healthcare market increased over 2017 and in Q118 itwas no different. This is driven by healthcare trends such as obesity and aging populationdemographics within some of the more mature global economies. The North Americanmarket was once again the most active region in Q118 with the home care market being ofparticular interest. Financial investors continue to be interested in the sector with theMontreux Healthcare Fund investing in specialist care recruiter Active Assistance.

14%General StaffingThe general staffing sub-sector saw a further fall in transactionnumbers, however, it still remains one of the most active sectorsfor transactions. Recruitment fundamentals are likely tocontinue trending upwards in key economies due to theconfidence within the global economy which could see furtherinterest in the sector as many are expecting fee income toincrease further due to staff shortages.

30.7%

Executive SearchEven with the number of transactions falling in the sector there is still a high level ofinterest in niche assets across all regions. In Q118 the most active market for executivesearch firms was Asia and the Middle East. An increase in global boardroom hiring may seefurther activity as acquirers look to new markets and geographies in order to grow.

1%

OnlineThis sub-sector has continued to attract the interest of financialinvestors and strategic acquirers looking for disruptivetechnologies and practices. The continued development of the‘gig economy’ means that the adoption of mobile technology isonly likely to increase and could give recruiters another valuableavenue to access high quality candidates. It is not surprising tosee financial investors focus investment on this sector due to itsdisruptive nature and growth potential.

24.6%

Human Capital Sub-sector Trends

= % of transactions Q1 2018= % growth Q4 2017 to Q1 2018

Information TechnologyTransactions in the IT sector increased considerably in Q118. Within this sector manyrecruiters are struggling to access the numbers of candidates being requested bybusinesses. As a result many strategic and financial investors are looking at the sectorwith interest. The $10m fundraise by Triplebyte shows that financial investors andparticularly seed and venture capital funders are looking for new solutions to access highquality candidate pools.

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Human Capital Public Comparables

Company Name

EV/EBITDA

Q2 2017 Q3 2017 Q4 2017 Q1 2018

Adecco S.A. (SWX) 9.6x 9.8x 9.8x 9.3x

Brunel International NV (ENXTAM) 13.9x 14.3x 19.2x 13.1x

CPL Resources PLC (ISE) 9.1x 10.5x 7.9x 8.7x

Empresaria Group PLC (AIM) 7.8x 7.3x 5.7x 4.6x

Gattaca PLC (AIM) 6.3x 6.9x 7.7x 5.9x

Harvey Nash Group PLC (LSE) 5.3x 7.0x 7.1x 6.2x

Hays PLC (LSE) 10.2x 11.4x 11.0x 11.1x

Impellam Group PLC (AIM) 9.8x 7.9x 7.9x 6.9x

InterQuest Group PLC (AIM) 5.5x 4.2x 3.4x 4.0x

ManpowerGroup Inc (NYSE) 9.1x 9.4x 9.8x 8.5x

Page Group PLC (LSE) 11.5x 12.1x 11.3x 12.3x

Prime People PLC (AIM) 5.0x 5.3x 4.2x 3.5x

Randstad Holding NV (ENXTAM) 10.6x 11.2x 10.9x 10.6x

Robert Half International Inc (NYSE) 10.0x 10.3x 11.2x 11.5x

Robert Walters PLC (LSE) 7.9x 10.7x 11.5x 10.2x

Staffline Group PLC (AIM) 9.8x 8.6x 7.8x 5.9x

SThree PLC (LSE) 8.0x 9.3x 10.4x 8.6x

Gambit Human Capital Index 9.9x 10.3x 10.4x 9.9x

Share PricesBoth the FTSE All-Share and the Human Capital Index tracked by GambitCorporate Finance fell in Q118. However, they remain higher than at this pointlast year. Some of this more reflects poor performance at an individualcompany level rather than wider sector concerns. Confidence is still high in thepublic markets and it is likely that Q118 is a slight blip. As a result many arepredicting that there will be an increase in share prices in the next quarter andover the rest of the year.

Valuation MultiplesPublic company EV/EBITDA multiples in the Gambit Human Capital Indexdipped below the 10x EBITDA level for the first time since Q217. The marketis still supporting strong valuations and providing favourable conditions forthose looking to sell. Valuations for a number of listed companies fell inQ118 but optimism remains high in the M&A markets, with the underlyingstrength of the public markets predicted to increase. This helps the sale ofprivate businesses in the sector and the provision of liquidity to publiclylisted acquirers. We are already seeing a number of public interestcompanies coming into the market for value enhancing acquisitions.

Outlook for M&A Activity▪ Valuations and market ratings have fallen slightly in Q118,

however, public interest companies can still pay highermultiples due to arbitrage opportunities against their ownmarket ratings

▪ The Human Capital sector remains cyclical in nature so thevaluations of private companies may soon reach a plateauproviding an opportunity for business owners andentrepreneurs seeking to exit and benefit from highmultiples available

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Gambit HC Index FTSE All Share FTSE Support Services Gambit HC EV/EBITDA

Gambit Corporate Finance LLPEstablished in 1992, Gambit is an independent corporate finance advisory firm specialising inadvising private and public companies on mid-market transactions in the UK and overseas. Withoffices in London and Cardiff, Gambit is widely recognised as a market leader in M&A advice in theHuman Capital sector having built up detailed industry knowledge and an enviable track record indeal origination and execution.

Key services include:

•Management Buy-outs/ Buy-ins • Private Equity Portfolio Advisory

•Mergers and Acquisitions • Succession Planning

•Fundraising/ Development Capital • Refinancing

•Financial Restructuring • Research and Deal Creation

ContactsGeraint Rowe Simon MarsdenPartner, Human Capital Director, Human Capital+44 (0) 789 992 8029 +44 (0) 779 644 1330geraint.rowe@gambitcf.com simon.marsden@gambitcf.com

Sam Forman Tom Linney Executive, Human Capital Analyst, Human Capitalsamuel.forman@gambitcf.com tom.linney@gambitcf.com

Tel: +44 (0) 845 643 5500Website: www.gambitcf.com

CFI GroupWe are the sole UK shareholder in Corporate FinanceInternational, a global partnership of leading mid-marketinvestment banking firms with members in North America,Western & Eastern Europe and Asia. With over 200 professionalslocated in 26 offices throughout the world we are able to providean international outlook and service for clients.

Website: www.thecfigroup.com