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Good Service & Profit; what does it mean in M&A?

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In an era of intense competition for candidates as well as clients, the quality of service provided can be a competitive advantage. In many of the interactions HHMC has with recruitment companies, often those selling their business, we hear about the depth of relationships they have developed with their clients by providing a high quality of service. Most are confident that these relationships will continue long into the future. While there is no doubt truth in many of these statements few can describe how they can confirm this to be the case or to even measure it.

If you are a buyer of a recruitment business what value would you attribute to client service?

An acquiring company may simply say that there is no additional value attached to the quality of client relationships and service levels unless there is a reasonable certainty about a continuing revenue stream. This usually means some type of formalised Agreement in place. From the perspective of the buyer and their advisors it is quite fair to put forward those high levels of service to clients and candidates flow through to results and profits. If that is not the case then there is something badly wrong with our markets in that competitive advantage through service quality doesn't work. Or perhaps clients don't appreciate it! Assuming that not to be the case then the value of service is reflected in the bottom line of the business and no other separate value can be attributed.

It is true to say that the existence of Preferred Supplier Agreements (or similar) are attractive, particularly in volume recruitment environments. Do Preferred Supplier Agreements indicate a high level of service? To some extent; yes, a supplier won't stay on a PSA list if they are not providing at least acceptable service in the client's opinion. However, being on PSA panel lists may indicate a willingness to offer lower pricing rather than service quality.

Related: Don't Let A Culture Clash Derail An Acquisition: M&A Specialist

Measuring the Value of Client service

Research into the measurement of client service and resulting company performance indicates that only a relatively small number of companies in any industry have managed to model the links between satisfaction, loyalty and profit. While there are numerous tools available and expert customer service consultants willing to assist it is not a widespread practice in the recruitment industry to measure the link between service and tangible results; read revenue and profit.

Good service makes sense

However, most of us intuitively know that creating good customer satisfaction for a service business just makes good business sense. When someone has a great experience with a service company they tell others. This kind of word of mouth advertising is very strong and inexpensive. You can't buy advertising like this and the return on your investment pay off in droves. The downside of this is that the opposite is also true. When someone has a bad experience, they'll go out of their way to tell their friends and contacts to stay away from your company. One dissatisfied candidate or client can cost you many future opportunities.

Providing good quality service is way of selling and promoting your business. It creates loyal clients, returning candidates can enhance advertising and we assume it really does result in increased profit. Your competitors may also find that your long term loyal clients are not willing to risk doing business with them which actually shrinks their potential market while increasing yours. In summary, good service does make good sense. For a company owner selling their recruitment business that good service that your team has provided for years will be measured in your profit. It won't necessarily gain you a higher multiple on profit but the greater your profit level as a result, the more you will gain financially.

Article written by Richard Hayward of HHMC

Categories: M&A

Tags: Strategy, Acquire, Acquisition and Divestment, Divest, Recruitment, Staffing, Marketing, Buy and Sell Business, Business Valuation, advisory services

Picture of Richard Hayward

Richard Hayward

Richard has 35 years of experience with outsourcing, recruitment and advisory firms. His record of achievement includes national recruitment management roles, and executive search and selection across the ICT, banking & finance and sales & market sectors. Since 2003 Richard has been a principal of HHMC, guiding recruitment agencies through acquisition and exit assignments. Located in Sydney, Richard works with private and public recruitment agencies globally. HHMC’s innovative business strategies and well-grounded guidance result in clients realising their personal and corporate goals.

P: +61 2 9221 8285 M: +61 411 488 544

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