Shares in IT recruiter Harvey Nash plummeted this month after it announced that difficult market conditions were continuing - despite a high-profile acquisition aimed to return the company to US profitability. Nash shares fell 37.5p to a five-year low of 117.5p.

Conditions in the US recruitment market remain tough, and this has hit overall profits, which Nash expects to fall between £0.5m and £1m for its global operations in the first half of this year.

In a bid to revive its fortunes, Nash is to acquire Broadbay Networks for approximately £2.2m ($3.15m).

Broadbay has operations in San Francisco and Denver and specialises in providing specially selected and trained teams for client projects.

Nash will combine Broadbay with its existing Techpartners operation in the US to maximise cross-selling opportunities, incurring $500,000 integration costs in the second half of the year.

Nash will give a cash payment of $675,000 for Broadbay and will next year pay a maximum of $2.5m in cash and shares, dependent on its performance between August 2001 and January 2002.

Chief executive David Higgins said: ‘The board expects the acquisition of Broadbay to give Harvey Nash the critical mass it requires to enable a return to profitability in the US in the second half of this year.’

One of the current shareholders in Broadbay will also be given the opportunity to participate in a share deal from Nash’s previous acquisition, Techpartners, in late 2002.

Nash believes it has reduced its annual cost base by £7.5m after a reorganisation, which cost £1.2m.

It stated at its 5 June AGM that conditions in the UK and European markets had softened because of the US slowdown.