M&A Terminology and definitions - Type of company: Global, Listed
We've previously discussed lifestyle, owner dominant and corporate recruitment agencies to compare and contrast their specific characteristics. But what about the agencies that endure the spotlight from media and financial institutions? This article discusses the characteristics of a publicly listed recruitment agencies.
Publicly listed companies are easy to identify and easy to research. A public company, sometimes called a publicly traded company or publicly held company, is a limited liability business that offers stock, bonds or loans to the public. These offerings, called securities, are typically available on a stock exchange or through a broker.
According to the rules of the stock exchange they operate on the need to publish their results in a timely fashion, and have to keep the market informed of activity and events that will impact their business. So we have immediate access to current information on these businesses. Their corporate activities are reported in the press and become one of the few sources of public information on company performance (e.g. profitability) and acquisition and divestment deals.
Related: Characteristics of a corporate recruitment agency
Annual reports are required to provide significant detailed information on operations and results. In Australia we even know what the management team and board members earn in direct and non-direct remuneration.
Of course the value of the publicly listed companies is known. Shares are available to be traded and daily the rises and falls in the value of the business are recorded.
All of this comes at a cost. Smaller public companies can feel the weight of this corporate regulation and governance requirements. The financial expense incurred by the organisation to comply is significant.
The increase in governance and the liquidity of the public company has an impact on its share price: public companies are valued higher than private companies.
Chris Golis, in his book “Enterprise and Venture Capital” gives an interesting rule of thumb. The value a “pre-IPO” business is about two thirds of a public business and the value of a private business is about one third of a public business. This rule of thumb does hold up in the recruitment industry.
There are other key features of a publicly listed company.
Limited Liability
A key characteristic of public companies is their limited liability status. Limited liability means that the business's owners -- its shareholders -- aren't responsible over a set amount for their investment in the company. This means that if a public company is sued, the parties bringing the suit bring it against the company, not against its investors or shareholders. In other words, a shareholder isn't personally responsible for the debts of the company in any amount over the value of the shareholder's investment.
While limited liability does offer protection to the shareholders of a public company, the shareholders are still responsible for their own illegal actions.
Stakeholder Involvement
In part because public companies offer so much protection to shareholders in the form of limited liability, stakeholder involvement is another key characteristic of public company management. Stakeholder involvement is about engaging all of the people involved with the business, including employees, shareholders, managers and the community at large. This is sometimes challenging because sometimes the goals of these groups can conflict. Managers might want to maximize the growth of the firm at whatever cost, whereas investors might want to ensure profitability.
For small to medium private recruitment company owners
For small to medium private recruitment company owners there is little to be gleaned from the activities of the publicly listed companies in relation to valuations, profitability, growth, services offered or even sectors covered. The strategies and governance of the listed companies is so different that the learnings are hard to identify and apply.
This article is part of a series related to M&A valuation in the current recruitment industry market. The series can be viewed here.
HHMC Global provides advisory services to the recruitment and staffing industry and is best known for its work on M&A transactions. HHMC is based in Australia and works with clients globally. To discuss your business future contact Rod Hore or Richard Hayward.
