Split Placements Add Value to Recruitment Businesses

By Dave Nerz

hand making a flow chartIndependent recruiters are risk takers. Recruiters typically strike out and leave the comforts of the corporate life behind. Many of these entrepreneurial ventures grow and prosper. One of the things I am seeing more frequently is the desire to create an “exit strategy” from the recruiting franchise that produces value in return for the risks taken and the successes achieved. In some cases the founding entrepreneur has been better at creating and growing the business than they have been at making the business saleable. Those buying a business want to see what value has been added to the business. They are not buying the entrepreneur; they want to buy what is left after the founder is gone.

So what can be done to add value to a recruiting business?

Add Process: The buyer wants to know that the success of the business is not dependent on any one individual. There needs to be a process for recruiting, doing the books, hiring and retaining, marketing the recruiting franchise, and even keeping the place clean and stocked with pens and toilet paper. A rule of thumb: if it is not written down, it is not yet a process.

Add Quality People: What people stay behind when the entrepreneur leaves? They don’t all need to be employees but they should be part of the process and the relationships might be better if captured in writing. This one is a little trickier as some buyers may want to use their own bookkeepers and cleaning services, so don’t get locked into irreversible contracts.

Add Connections: Develop and document the relationships that separate your business from others in the same niche or market. Trading partners that work cooperatively with your business can be the difference between a good year and a great year. They can add the revenue that represents the total profit for any year. These connections add value, but need to be documented in order to produce value at the time of sale.

Add Sources of Revenue: The number one value added source of revenue for any recruiting business is contract placement. These contracts smooth the peaks and valleys associated with contingent recruiting. The ongoing revenue adds to the basic value of the business and increases the likelihood of a sale for a recruiting business.

A second way to smooth the ups and downs is the inclusion of split placements. Split placement revenue is not guaranteed, nor is there a guarantee of continuation on the departure of the founding entrepreneur. But if properly documented as part of the recruiting process, split placements can be demonstrated to add value and reduce the risk of long dry spells for incoming revenue. The ability to work others’ jobs when you have none—or to seek the help of others (without adding staff) when the business is overwhelmed—is a great value that needs to be documented and sold as part of the business.

Add a Formal Split Fee Network: Showing a potential buyer that you have formalized the process to the point of being an active member of a split fee network is a bonus for any potential buyer.

Make your years of risk-taking pay off. Plan ahead and add value that a future owner would potentially pay for.

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Image courtesy of Sujin Jetkasettakorn
/ FreeDigitalPhotos.net


Mergers and Acquisitions in the Global Recruiting Industry

By Dave Nerz

for sale signAs with most things in business, the global financial crisis impacted the number of global recruiting mergers and acquisitions done in the past few years, as well as the value of those deals. Staffing Industry Analysts reports results of global recruiting business acquisitions on a quarterly basis. These facts can be found on their website, staffingindustry.com. According to Staffing Industry Analysts, the number of global deals done in the 3rd quarter of 2009 was at a record low, and even quarters into 2011 showed great weakness in the number of global recruiting acquisitions completed.

More recruiting company purchases are focused on firms doing contract employment and temporary staffing. These types of firms have higher multiples on the sale of a recruiting business because contract employment is considered much more of an annuity than a direct hire placement. Contracts renew and can last for years while direct hire placements can be a “once and done” event. While experts disagree on the multiples, most quote a range of 2 to 4 times EBIDTA. There are many factors that can change this multiple up or down, including the location of the business, the mix of contract to direct hire, and the sector or segment of focus.

The most popular recruiting business sale segments right now are IT, healthcare and industrial. Not a surprise. Again there is  a larger multiple on the sale of a recruiting business from these segments and hence, more frequently a deal completed.

A new trend is the global recruiting business acquisition. The reason for the growth in global acquisitions is obvious to me, but maybe I’m too close to the topic of global recruiting to understand why it would not be obvious to all. I see it like the stock market….diversification is good. The same with growing global recruitment companies. They need coverage and diversification into more market areas and more economies. This should help them tap growth markets while diversifying their business portfolio. Global recruiting is expected by more clients as they grow their search for talent. So firms in the US need an Asian presence, and global recruiters based in the UK or Australia may need a North American location.

Has anyone sold a recruiting business recently or done the work to estimate multiples? I am interested to know your experiences.



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