As the year has progressed we have all seen a rise in announcements about acquisitions in the recruitment industry. A rush of consolidation activity is underway between the large and international companies. In a number of cases the deals are enormous and the valuations seem “generous.”
Does this activity have any impact on life for the small-to-medium business owner and manager? Well, yes it does. Here are 4 impacts.
The question we are most often asked is about agency valuations – does all of this activity create a spike in value for small-to-medium enterprises (SME’s)? Possibly, but not for most.
For most SME’s, HHMC has seen little change in valuations over the past decade. Profit levels have risen and fallen, and the appetite for acquisitions has risen and fallen, but the multiple of profit paid for SME’s has mostly stayed within a set range.
In most circumstances, larger companies cannot justify acquisitions that are too small as the transaction cost and risk is too high for the expected return. The exception may be those companies that have developed a particular niche that is in demand and can prove there is strategic benefit is that niche.
However the rise in larger-scale M&A activity does embolden SME owners and managers to consider acquisitions as part of a growth strategy. These are not reported widely, but the activity level is high.
The rise in global companies has an impact on SME’s. Not only does it bring well-funded and high-performance organisations into a local market, the global companies tend to have disruptive models compared to local SME agencies. Clients are presented with new solution models and new pricing models that are often beyond what can be provided by the SME’s.
SME’s need to choose their strategy carefully so they are providing services to clients that want those services.
Large works with large
As the recruitment industry’s clients adopt greater HR and procurement-led purchasing models, SME’s tend to be sidelined. Larger companies work with larger companies in most circumstances. This is especially true for international organisations that are seeking single-supplier solutions across counties and across regions – indeed this is driving some of the global M&A activity.
SME’s need to consider where they can best add value and what client type they should target.
Success breeds success
A very positive outcome of the M&A activity is that it puts a spotlight on the industry. This can lead to greater investment activity such as the attention of private equity companies seeking investments in a buoyant industry. It also attracts greater entrepreneurial activity, attracts new management talent, and provides a focus for business advisers.
One would hope the focus and activity will embolden business owners and managers to strive to build the best businesses they can; businesses that will come to the attention of global acquirers or the private equity investors.
That’s good for the industry.
Article written by Rod Hore and originally published by NPAWorldwide