Recruiters heading for change:
That old cliche about waiting ages for a bus, only for two to come along together, was an apt way to begin the conversation with Paul Atkinson.
The venture capitalist and headhunter had just pulled off a deal to acquire Change Recruitment, merging the Glasgow and Edinburgh business with his own Head Group to create one of the largest private companies in Scotland.
Just hours before the deal was announced on Tuesday Edinburgh-based Brightwork was sold to Midlands-based Staffline.
“There has not been much activity in this sector for a long time until this week,” says Atkinson, adding that there will be more to come, and that he has his eyes on other potential combinations.
“Undoubtedly there will be more deals. Our strategy is to find either individuals or companies with service lines that can be in the top three of their market sector or space.”
He believes technology will play a big part in the development of the category, via artificial intelligence and data science to provide solutions, and that recruitment firms will need to find partners.
“People in the sector feel there has to be consolidation, particularly if you want to build an international business, which is our ambition.”
Atkinson sees the tie-up with Change as transformational for his Head Group which also includes the tech-focused Head Resourcing, Head Medical and Atkinson MacLeod Executive Search which joined the group in March. They will each continue to operate under their own brand, though the opportunities to operate across a range of sectors and to achieve economies of scale are obvious.
‘The cultural alignment is compelling’
The deal came about after months of talks. Change and its owner NBG Private Equity had been pondering a number of potential suitors but began negotiating seriously with Head last summer. It emerged this weekend that Change was put into administration on the day head acquired its assets.
“The cultural alignment is compelling. There is some client overlap, mainly in financial services, but the two businesses are highly complementary,” he says.
“Our plan is to use technology heavily to get a competitive edge. It will become increasingly difficult for smaller firms to compete.
“Getting access to the big companies will become difficult for them. For that reason there will be consolidation in the business.”
The enlarged group will have a turnover of £60 million and will operate with more than 140 staff from offices in Edinburgh, Glasgow and Leeds, supplying to more than 15 countries. Atkinson says its international ambitions will not mean opening offices overseas just yet, but this could happen in the longer term.
It is also probable that more jobs will be created, not least in the new technologies such as data analytics
The company is looking to sell some of its in-house skills, such as pre-employment screening, to third parties, thereby turning a cost into a revenue stream.
Atkinson was born the son of a Yorkshire farmer and since arriving in Scotland via the semi-conductor industry and a series of other headhunting roles, he is equally well known as a founding partner of the angel investing group Par Equity.
He formed the business with marketing specialist Robert Higginson in 2008 with Paul Munn and Andrew Castell making up the partners who still run the business from Edinburgh’s New Town.
It has backed a number of notable successes on home soil, including Vert Motors, PureLifi and Mallzee, though arguably its most adventurous move was setting up an office in San Francisco to attract funding from both sides of the Atlantic.
Eighteen months ago it invested in a Calfornia virtual reality spin-out from Lockheed Martin, its first overseas funding deal.
Angel funding is another sector which is now working more closely with partners.
“You will see more co-investment deals. It spreads risk, extends ‘brain’ power, provides access to more money and to a bigger network,” says Atkinson.
‘Brexit is an opportunity and a risk’
His recruitment businesses are growing alongside the angel activity. Dealing with external challenges, such as Brexit and tax, are high on the list of issues to tackle. A big Brexit issue for recruitment firms is attracting overseas professionals who may face difficulties under proposed new caps on immigration.
“Brexit is an opportunity and a risk,” he says. “It is not making the UK particularly attractive for [foreign] professionals just now. If there is a choice between the UK and Australia they are heading to Australia.
“On the other hand, I see it as a short term aberration. The politicians will have to sort it out.”
Another issue is the squeeze on NHS budgets. “Our guys at Head Medical will tell you that people are leaving because the NHS is a tough shift at the moment. It uses tends of thousands of non-UK people. The inflow has dropped and that is creating staff shortages. The government will have to find a solution.”
He also questions the relatively high taxation on Scottish residential properties, particularly at the top end of the market which is impacted by the land and buildings transaction tax (LBTT), Scotland’s replacement for stamp duty.
“LBTT is making it difficult for senior professionals to move house. Everyone will tell you that the top end of the market has ground to a halt. No one is moving and it is putting a brake on mobility.”
Aside from these frustrations, he says Edinburgh justifies its billing as a technology capital that is creating opportunities for specialists.
“It has become a real hotbed for start-ups,” he says, putting the growth down to top-grade courses at the universities, a “good supply” of angel investors and a benign tax regime, particularly entrepreneurs’ relief which has cut the tax paid on the returns investors receive.
“The eco-system is very good with organisations like CodeClan a brilliant example of helping to bring people through,” he says.
“Also you now have some of those who sold businesses re-investing in the next generation. That never used to happen. They made their money then went off to live in Monaco. It has become more fashionable to stay here and they’re keen to put something back.”
On that point he warns the politicians against scaring them away again by imposing taxes that will deter investment.
“If an investor thinks he’ll have to pay 40% or 50% of his profit to the tax man why would he take the risk? He may as well put his money into a fund.
“The tax regime is hugely important. I would tell the political classes not to touch these tax reliefs.”
Birthplace: Rawmarsh, South Yorkshire
Education: Manchester University (Physics)
Career highlights: Offered the opportunity to study for a PhD, but took a job at Philips in Southampton as a semi-conductor engineer; headhunted by US firm Millipore and returned to Manchester; moved into recruitment with Computer People which opened an office in Edinburgh; worked for Parity, IBM (as a consultant); set up Direct Resources with Gordon Adam and RecruitmentScotland.com, both later sold; set up Head Resourcing in 2001 and Par Equity in 2008.
Any other skills?
I play guitar. I was the lead guitarist in a rock band.
I still play squash, though my wife is a better player. My business is my real hobby. It’s great fun and I have made a lot of good friends through it.