Staffing sector sees increase in acquirers purchasing businesses

There has been a surge in the number of acquirers looking to purchase businesses in the staffing sector, says Carl Swansbury, corporate finance specialist in the staffing sector. Judging by the number of transactions already completed this year, the outlook for 2011 looks interesting… but what makes a business attractive to acquirers?

Few would argue that 2010 wasn’t a challenging year for many in the staffing sector. As well as the fragile economic backdrop, there were several changes in legislation - leaving many business owners feeling vulnerable and unsure about the future.

Instead of looking to grow, acquire or sell their businesses, owner managers decided to sit tight and ride out the storm - but that was no bad thing. 2010 may have been a difficult year, but it gave many company heads the chance to reflect, consolidate and make plans for the future, and it worked.

In 2011 we are now seeing the results of that period of reflection. The staffing sector is moving again and as a result I have completed a number of transactions in the past 12 months including the sale of Ethos Recruitment Limited to Staffline Group Plc and the acquisition of Atlan by Advantage.

I am finding that acquirers are eager to bolster their existing businesses by making strategic bolt-ons in markets which are proving to be fairly static in terms of organic growth. Many acquirers recognise that 2011 will offer greater growth opportunities for both temporary, contract and permanent recruiters and therefore the right deal will be earnings enhanced almost from day one.

Now that the market is moving again, we can think about company credentials. But what makes a staffing business attractive to a potential purchaser?

When eyeing up a potential target a purchaser will look at scalability. The target business would have to be scalable and have potential for future growth. It goes without saying that the business would also have to be well funded.

You also need to think about the visibility of your company and its prospects. Is there potential for growth? A strong, incentivised management team is crucial to a company’s success, as well as a well respected enviable brand. Focus on the USPs of your business - as well as creating good corporate accounts with sole and preferred supplier status.

Purchasers may look for a larger, well diversified business to acquire, but they also look at smaller specialised businesses with a niche service to offer. For example, if it is a small owner managed business, it would need to be a specialist firm as this gives the business more impetus.

Businesses need to display a good mix of contract and permanent revenues - and show turnover with net fee income and margin growth.

So, what are the ideal targets? The recruitment sector is consolidating with a large number of businesses looking to make strategic acquisitions, for example Staffline’s recent purchase of Ethos - its twelfth acquisition in as many months.

I’m in regular contact with a number of buyers and investors within the staffing sector, which are starting to come to the fore looking to make strategic acquisitions.

But it’s not all about the here and now - deals don’t happen overnight.  I speak to sellers and ask them what their plans are for the future. We then devise an exit strategy where we look at ways of growing the business, and making it more attractive for a buyer in, say, three to five years’ time. It’s all about achieving your personal and business objectives.

I would always recommend getting a strategy in place for a future sale and then set about preparing a list of prospective buyers. By getting a strategy into place, and working through the possibilities, there can be excellent outcomes for both sides – such as the sale of Ethos to Staffline.

There is undoubtedly an increased appetite for acquisitions. I am seeing a notable increase in the numbers of vendors – and I believe that the industry will continue to consolidate over the next 12 months opening up huge opportunities for all.