Plan · Create · Grow · Buy · Merge · Sell
Advisors to the Recruitment Industry

HHMC_Blog.png

Buy now – Win in The Future

M&A-buy

Simon Kent, Editor of  The Global Recruiter, looks into the health of the recruitment industry M&A market and asks Rod Hore what recruitment companies can learn from the current activity.

Q: What is the current health of the M&A market?

A: M&A activity at the moment is strong, but there is possibly a reduction in the number of buyers looking to undertake the larger transactions. This could be, of course, just a hangover from the above average number of notable deals in the past 12-24 months.

The Asia Pacific region is not isolated from international issues and our two major influences, the UK and USA, are both in periods of business uncertainty. Therefore deals involving international partners appear to be slower than recent years and there is little enthusiasm from the IPO market or from Private Equity.

At the smaller end of the market there is no slowdown. There are buyers and sellers in the market and demand from both seems to be increasing.As always there is some confusion and misinformation about valuations, possibly from the good press about the larger deals. While some agencies at the top end may achieve strong outcomes, there will be many at the smaller end of the market that will find valuations constrained and deal structures onerous.

Q: What reasons are people buying/merging their recruitment businesses. Are there any general themes in terms of capturing niche, size of enterprise, international aspirations etc.etc?

A: Companies with an international and global strategy are taking advantage of access to cheap capital to grow by acquisition. The decision on where to expand and in what sectors is unique to the organisation’s strategy. Japan, for example, might be reacting to a long-term decline in the local market, while the US might be driven by client demands for international solutions. Similarly, there are medium sized agencies that are seeking to partner-up with an international company to ensure their growth and opportunities are not stifled by lack of capital or geographic boundaries.

Related: Buyers of recruitment services are increasingly sophisticated

Smaller organisations are seeking to buy for the same reasons albeit within a local region – to position themselves in a geography or sector. As recruitment consultants are increasingly hard to attract, acquisition also alleviates that issue. Smaller sellers are in the market for the same reasons as always – the owners may be looking to retire from the industry, the business may be strategically in the wrong place (eg has lost access to major clients), the business may be lacking capital, or the financial and regulatory environment has defeated the owners.

Q: Do you feel the M&A market is now as good as it was pre-economic crash?

A: HHMC believe the M&A market is better than in the period leading up to the financial crisis. Buyers and Sellers have access to greater market information and so are more educated and risk-aware, there is better sources of capital available, and the increase in globalisation has brought new options to owners of recruitment agencies.Valuations at the top end are possibly higher than before, but there is a greater understanding of value and risk with smaller companies so these valuations may have reduced a little.

Q:What are buyers looking for within individual recruitment operations and are these considerations changing?

A: Buyers are still looking for similar requirements as before. These can be broken into two sets of criteria. First there are the hard facts about the business that will make it “fit” or not, such as sector, geographic coverage, size, client list, productivity and performance (profit), and mix of contingent revenue.

More often it is the attractiveness of the company that will really make the difference. Is the company open and easy to do business with? Does it solve a problem for the buyer? A company needs to be able to articulate its strategy, prove its depth of management skills, show its marketing and sales capacity and success, and of course run clean accounts. This final point still brings companies grief – many small tax accounts are not sufficiently skilled in advising a growing company how to prepare and present itself for future inspection and attention in a deal will quickly move from the P&L to the Balance Sheet.

     The Global Recruiter

Does an acquisition make sense for your business?

First published in The Global Recruiter 2016

Categories: M&A

Tags: Strategy, Acquire, Acquisition and Divestment, Recruitment, The Global Recruiter, m&a transaction, Buy a Business, Business Valuation

Picture of Source Material

Source Material

HHMC works with other specialists in the industry to bring you the best information. Please contact us if you would like to know more.

Most Popular Blogs

Posts by Tag

see all