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Episode 166 - Are large recruitment firms adopting a shrink to grow strategy?
63 Plays3 hours ago
RNA episode 166 has news for 23 June 2026, with the Hudson creditors meeting again tomorrow, a new leadership hire at Davidson in Melbourne, Hays sells its operations in six European markets, legal right to work from home legislation is tabled in the Victorian state parliament, and the latest SEEK job ad data for May. Question of the Week is "Are large recruitment firms adopting a shrink-to-grow strategy?"
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Transcript
Leveraging Support Systems in Recruitment
00:00:07
Speaker
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00:00:37
Speaker
more productivity, more placements and more time spent where it counts. Visit Wingman Group and explore their recruitment solutions today.
Financial Challenges and Legal Issues at Hudson
00:00:46
Speaker
Welcome to Recruitment News Australia. This is the news for the 23rd of June, 2026. I'm Ross Klenit. And I'm Adele Last. It's D-Day for Hudson employees tomorrow, Adele.
00:00:57
Speaker
The second meeting of Hudson's Creditors reconvenes, having been adjourned after a docker was withdrawn before the meeting scheduled for the 27th of May. Why was the docker withdrawn, Ross?
00:01:09
Speaker
There was no reason given, but I bet that the ATO 20% garnishment order from earlier in the year was the reason. Oh, what happened? On the 30th of March, four weeks before the company entered voluntary administration, the ATO issued Hudson's payroll factoring provider, Scott Pack, with a notice requiring them to remit 20% of all drawdowns to the ATO.
00:01:32
Speaker
After the administrators took over the company on the 22nd of April, they wrote to the ATO requesting the notice be withdrawn as the 20% remittance would effectively kill the administrators' chances of keeping Hudson operating. Let me guess, the ATO said no?
00:01:47
Speaker
They did, but the administrators challenged the decision in the New South Wales Supreme Court. On the 20th of May, the court ruled in favour of the administrators, concluding that redirecting 20% of funds to the ATO deprived the administrators of cash flow that would otherwise be used to keep the business operating.
00:02:06
Speaker
So connecting the dots here, we can speculate the docker was withdrawn before the second meeting because there may have been the potential of the ATO wanting their 20% garnish. which would put pressure on the company's cash flow and made the docker harder to deliver.
00:02:20
Speaker
Exactly. The implications on cash flow for a company attempting to return to health are obvious. Of course, there's no guarantee the ATO would immediately seek to reinstate the 20% garnish. However, that's a risk any new owner would have to take and have funds to support if the ATO acted.
00:02:37
Speaker
No doubt the many Hudson employees will be anxious attendees at the meeting tomorrow.
Leadership Changes at Davidson
00:02:42
Speaker
Ross, I see Davidson in Melbourne has some good news to share rather than bad news. Yes, Luke Henningsen is taking over as national senior partner and GM for the Victorian search practice, stepping into the role previously held by Seamus Scanlon, who finished his nearly 10-year stint with the firm last month. And Claire McCartan's departure shortly after Scanlon's was worse news on top of bad news. The appointment of Henningsen seems a little curious though, don't you think?
00:03:10
Speaker
He's ah certainly had a somewhat erratic path since 2015 when he left the business he co-founded in 2007, SHK Asia Pacific, originally known as State Henningsen Climb.
00:03:22
Speaker
First he joined Mitchell Lake, then left in 2018 to establish his own search practice, Scale & Swing, focusing on C-suite hiring for startups. He closed that business in 2023 to join Manpower's technology business, Xperis. I see he left Xperia's in 2024 and then had short stints at Amrop Carmichael Fisher and C-Suite Partners before starting his third search business, Henningsen Search, in February this year. yeah Henningsen seems to have shut that business after four months to join Davidson, which can only indicate he wasn't gaining the traction with clients he was expecting, and now it's back to being employed again. Well, based on his history, I would suggest his tenure is unlikely to be long term. No doubt Davidson are hoping for a much longer and more successful stint to help shore up their decimated Melbourne search practice.
SEEK Employment Data Analysis
00:04:12
Speaker
Well, the latest SEEK employment data for May 2026 shows a slight softening in the market with national job ads falling by 0.8% for the month and year There's also more competition for these roles. Applications per job advertisement jumped by 3.6% in May 2026 alone, and they are now 5.5% higher than they were this time last year.
00:04:36
Speaker
The decline seems widespread, although some regions are holding up better than others. Surprisingly, Tasmania was the only state to record growth in job ads this past month, up by 0.8%. WA posted the only year-on-year growth by state or territory, although it was just 0.4%. And despite the general slowdown, certain sectors are still showing resilience.
00:05:00
Speaker
Engineering and science and technology both saw 2% increase in job ads month-on-month, which is consistent with the annual trends we are seeing in infrastructure and resources.
00:05:11
Speaker
Over the past year, engineering ads have grown by 16% and construction has risen by 7.8%. It seems these technical roles are providing a lot of support to the broader labour market.
00:05:22
Speaker
Mining, resources and energy grew by 5.6% year-on-year and manufacturing, transport and logistics managed a 3.1% annual increase. It really highlights a divide in the market. While consumer-facing and professional services categories are losing some momentum, the demand for roles related to infrastructure and essential resources remains strong and there's no sign of a drop.
Strategic Shift at Hayes
00:05:47
Speaker
Adele, some massive news from the sixth largest global recruitment company, Hayes. They've sold their operations in six European countries and they're now exploring options for a similar outcome in seven other territories. Hayes has announced private equity firm Meraki Capital has purchased their business in the Czech Republic, Denmark, Hungary, Luxembourg, Romania and Sweden for £4 million pounds in net cash proceeds after transaction costs. These countries are on track to deliver around £85 million pounds in net fees for the current financial year ending next Tuesday, which represents about 10% of the company's global net fees.
00:06:26
Speaker
I note that Meraki Capital has acquired six other recruitment businesses in the past six months, indicating a very aggressive growth plan. Hayes, under new CEO Mark Durnley, has ceased Hayes' global expansion ambitions, which has been the hallmark of the company for the past two decades.
00:06:43
Speaker
The company's statement noted they are still exploring sale options for seven other locations, including Belgium, Brazil, Greater China, Malaysia, the Netherlands, Singapore and the UAE.
00:06:54
Speaker
If those divestments are completed, Hayes will have operations in 16 remaining core countries, clearly indicating the board has decided to double down on core and high potential markets instead of global growth.
Victoria's New Work-from-Home Rights
00:07:07
Speaker
Victoria's new work from home legislation is soon to be law as Premier Jacinta Allen just introduced a bill to amend the Equal Opportunity Act 2010. Starting from the 1st of September this year, eligible employees whose roles can reasonably be performed remotely will have a legally protected right to work from home for up to two days each week.
00:07:28
Speaker
Yes, it's a significant change and the difference compared to other workplace laws is the government is embedding this right within the state's anti-discrimination framework at all. By doing this, the government ensures that any disputes are handled through the Victorian Equal Opportunity System instead of the Fair Work Commission. The right even extends to regular, casual and part-time workers. It goes much further than current federal regulations which only provide a right to request flexibility rather than a guaranteed legal entitlement.
00:07:59
Speaker
The government is pitching this as a major win for families. They claim that working from home can save Victorian workers more than $5,000 a year, mostly by cutting down on transport and commuting costs.
00:08:11
Speaker
The move is forecast to save the average relevant worker more than three hours a week in commute time. The government even linked the current 4.4% increase in workforce participation, compared to pre-pandemic levels, to the flexibility that remote work offers to parents and carers. Workplaces with fewer than 15 employees have a delayed start date of the 1st of July, 2027, giving them a 10-month grace period to adjust. The business lobby has been outspoken in its opposition.
00:08:40
Speaker
Tim Piper from the Australian Industry Group has described the legislation as unnecessary and burdensome. He also suggested the move was politically motivated ahead of the next election in November this year, rather than being designed to strengthen the economy.
00:08:54
Speaker
ah predict the problem will be with the interpretation of work that can be reasonably done from home. This creates a massive grey area where there will no doubt be disputes based on the relevance and importance of collaboration and teamwork. A big watch this space, I say.
Japan's Anti-Monopoly Investigation
00:09:12
Speaker
Massive news out of Japan earlier this month, Adele. The Japan Fair Trade Commission targeted five of the country's largest staffing firms over suspicions of violating anti-monopoly laws.
00:09:24
Speaker
Unannounced inspections of each company's premises were conducted on the 2nd of June. The agencies involved included the largest in the country, Recruit, and the second largest, Persol.
00:09:36
Speaker
Global Heavyweight's Manpower and ADECO were also rated and Staff Service is the other firm under the microscope. Why did the Japan Fair Trade Commission do this? There hasn't been an official statement. However, news reports allege that executives from these companies met in November 2022 to reach an agreement to raise client fees nationwide. In other words, to form a cartel and lessen competition. It seems the JFTC suspects they formed this cartel specifically to boost profits. It's the first time the competition watchdog has conducted on-site inspections for alleged anti-competitive conduct in the local staffing industry.
00:10:14
Speaker
The companies are now required to submit documents for analysis by the Commission. Given the dominance of these five firms in the local tent market, the results of this probe will likely have a massive impact on the entire Japanese labour market.
Launch of 8020 Labs and Mental Health Focus
00:10:28
Speaker
Good news for ex-recruiter co-founder Declan Kluver. Nine months after he was left with catastrophic injuries after a suicide attempt, he's announced the launch of a new business called 8020 Labs Pty Ltd.
00:10:41
Speaker
That is great to hear, Adele. I um read from Kluver's LinkedIn post last week that his co-founder is Wawa Inga. whose profile says he supports men to create positive behaviour change, strengthen relationships and build healthy futures. 8020 is going to be a mental health and wellness company for business owners. It will involve programs like coaching, events and retreats based around self-care, utilising doctors, counsellors, trainers and psychologists.
00:11:08
Speaker
I see the Courier Mail ran a story about the launch. It's great to see local media support for Kluver's new venture.
'Shrink to Grow' Strategy in Recruitment
00:11:22
Speaker
Question of the week. Are large recruitment firms adopting a shrink to grow strategy? Well, it's a very pertinent question, Adele, given the news that Hayes have sold operations in six territories in Europe and are considering the sale of seven other operations in territories around the world. So, This is unprecedented. Hayes have effectively said that we're going to halve the number of countries we operate in after being one of the leaders globally in the expansion of staffing businesses in all countries.
00:11:56
Speaker
But we've seen other big firms contract as well over time, Ross. Well, there's certainly, when when you look at recent history, i mean, Hayes A&Z, got out of healthcare, and that's very significant because it's the largest employing sector in Australia. Michael Page in 2020 announced that they were getting out of New Zealand and have exited that market. Recruit, we reported last week, potentially might be selling programmed.
00:12:24
Speaker
Randstad a couple of months ago said that they were selling or had sold their tech and consulting business in Europe and Australia. ADECA Australia is running huge losses and frankly, I think their long-term future in Australia has got to be under question.
00:12:40
Speaker
And even like Robert Walters exited Christchurch, I mean, that's effectively known as the third largest staffing market in New Zealand. So there's global and local examples where companies, big companies are divesting So we're saying that this is a shrink to grow strategy. We're saying that this is i plan in order to improve ah profits right and reduce costs. But, you know, it it must feel a little like um the industry as a whole is shrinking, right? Well, traditionally, our industry has grown by adding offices and adding consultants, and that leads to bottom line growth. And I think Hayes, ah not alone, but Hayes have made a clear decision that those days are over and they're going to focus on the markets where they already have a market leading position, probably one, two or three in the local market, like in Australia. and high potential markets. Because despite what people think, the recruitment industry globally is very low margin.
00:13:49
Speaker
And those big businesses are making slivers of profit on huge amounts of turnover. And I think they've all come to the conclusion, probably at slightly different times, that that just can't continue. And they have to look at how they're going to make profit. Because given all the very low share prices that you're seeing for those businesses, the investment community has just gone cold on them.
Impact of Major Firms Exiting Markets
00:14:12
Speaker
I'm going to throw in the AI factor here as well. I have to wonder how much impact that's had in these strategic decisions around the fact that recruitment businesses can run really lean nowadays. You know, you talk about that these growth strategies have been about ah increasing sales and that's included increasing costs, you know, increasing staff, opening offices, technology infrastructure, all of those things. And that's been the strategy until recent times. Now with the advent of AI and technology doing much more of the heavy lifting, I really wonder if that has had as big an impact as we think in relation to the way businesses are being structured in these larger firms. But, you know, even looking at startups nowadays, you know, if you were to start a business today, 2026 or into 2027, the requirements needed to start are very different.
00:15:06
Speaker
Completely. You look at the legacy costs of the hazes of this world. All of those offices, all of those corporate overheads, all of those non-fee earning staff. I mean, typically, haze for every um fee earner, sorry, for every two fee earners, there's one non-fee earner ah globally. And that's that's a huge that's a huge amount of cost. And clearly, they're cutting back in that area But when you look at what just some of the owners who started new recruitment businesses recently and how they're creating leverage with much lower cost, that's the future for our industry. Sorry, that's the profitable future for our for our sector.
00:15:51
Speaker
You've got to think this is allowing people to do exactly what AI was supposed to do in terms of releasing time so that agencies and recruiters can be you know connecting with the right talent, connecting with their clients better. So but offering more of that boutique experience, I suppose, to to their clients. And I wonder if that's what's gotten lost in that you know in that challenge for growth or the or the strategy around growing at any cost. sure.
00:16:21
Speaker
i'd ah'd I'd say no doubt. And the recruiters who have not been that profitable are probably those recruiters that have largely head ah hid behind technology. So it's using email and they're not the people who are naturally out the front building the client and candidate relationships. and um um I've had owners say to me, and I'm sure you've You've had the same where it's like, why won't people get on the phone? Why are people reluctant to go on visits? And it's because that's not what they see as winning work. They see that as the difficult part and they tend to avoid it. And those people who are very good at that are those people that can leverage the technology at the back end and potentially become hugely profitable either as individual consultants or as owners of agencies.
00:17:13
Speaker
But what's the underlying story to this then, Ross? Because presumably organisations like Hays have you know massive budgets, they have big marketing departments, they have training systems and processes that require that kind of activity. So surely they're providing that service. They wouldn't divest, they wouldn't shut down or sell off these offices if they were profitable and doing well for them. like Is there an underlying story we don't know?
00:17:39
Speaker
I don't think there's anything more significant than boards basically deciding we have to narrow our focus. We just have to look at those markets where we are the market leader or maybe number two or number three, because that's where the profit is. And whether it's Hayes exiting healthcare in Australia or any of those other decisions that I mentioned earlier, I'm I suspect its board's just getting very hard-headed that our focus in those areas produces not enough profit, maybe none, and the prospect of future profit is minimal.
00:18:19
Speaker
Therefore, we're being realistic and we're saying, let's get out now and let's redirect our focus to those areas where we can or we are making more profit and we believe we can continue to make profit or maybe more profit into the future.
00:18:32
Speaker
Okay, so I'm going to kind of extrapolate this out. Let's imagine Hayes pulls out of Australia. Let's imagine we have you know a narrowing of these larger firms. What's the impact likely to be for the greater industry?
00:18:46
Speaker
Well, firstly, I think there's zero chance of Hayes pulling out of Australia because they're the largest well, have traditionally been the largest by sales and profit. So I don't think that's going to happen. But let's just say a big recruitment agency pulls out of Australia, let's say ADECO, then I think that is going to create, I won't say a crisis of confidence, but I think many of the recruiters who work for the large businesses would be spooked by something like that.
00:19:15
Speaker
They're spooked enough with the collar um liquidation. They're spooked enough with Hudson going into voluntary administration. If you had it echo just pulling out of Australia,
00:19:26
Speaker
I suspect that would just be another piece of pretty significant market news that would have people who are in a large business go, am I really safe? No matter what my manager says or my manager's manager or my manager's manager's manager says, if there's a decision being made in some faraway boardroom that none of those people have impact over, I could find myself out of a job pretty quickly. Is this why we're seeing so many more startups, do you think, in the market? People going out on their own and starting their own agency. ah I'd say for sure a lot of those um big fee earners and those bigger businesses are looking around and going, I don't see a significant future here. Firstly, if you're someone who wants to climb the career ladder, Clearly, these businesses are shrinking, so the latter is smaller.
00:20:13
Speaker
And you're looking around going, am I just going to continue to subsidise these people who aren't truly profitable? My income or my earnings from my income is not going to go up while the company is struggling. Then if the person thinks they've got a good decade or two or maybe longer ahead of them in this sector, they're probably going to go, well, what's the worst thing that can happen if I go out and try and set up on my own? The worst thing happens, it it doesn't go so well and I'll find another job. But by and large, if someone's been a profitable recruiter, the likelihood is with very low overheads in this day and age that they can set up and set up profitably quite quickly.
00:20:52
Speaker
It's really interesting because there was a time when the brand was all important, right? People flocked to these organisations yes because they wanted to pick up the phone and say, hi it's Adele from Hayes. Hi, I'm calling from Medeco. It doesn't appear that that is such a drawcard anymore and people are putting a greater emphasis and value on the relationships, the knowledge, the access to the talent more than ever.
00:21:15
Speaker
I think you're spot on there, Adele. Brand equity in terms of business development, although it's not negligible, it does count for something, I think it counts for less than it used to And I think that will um continue to shrink that brand equity.
00:21:34
Speaker
And it'll be much more about the personal relationships. And that's why i think there's a lot of confidence in people going out on their own, even though overall the market is quite tight right now.
00:21:47
Speaker
Now that Hayes have made a big move like this, it'll be really interesting to see whether any of the other large brands like Michael Page or Robert Walters follow suit and what that impact might be for the Australian recruitment industry market. I guess we'll have to watch and see over the next 12 months.