It is counter-intuitive, but now is actually the best time for recruitment owners to talk to potential acquirers.
Given that most acquirers prefer founders to stay on for a reasonable period during an earnout to reduce risk, there is a credible argument for negotiating an agreeable current deal right now, which includes an attractive earnout in anticipation of an eventual market recovery.
Companies that sold prior to the current downturn will be in a much more difficult situation right now if their earnout was tied to short-term future performance.
My personal experience when I sold my co-owned recruitment company back in 2005 was that we received much more during the earnout period and from accepting fast-appreciating shares rather than cash. Most people feel that shares are riskier than cash, but if the acquiring company keeps making profitable acquisitions the share price increases will quickly out-pace a lower, fixed cash price based on a multiple of earnings.
In this current market acquirers are particularly looking for agencies which have:
- Low dependency on the owner or one senior biller
- Diversified client base
- Strong recurring revenues
- Low staff turnover
- Owner who are happy to stay on after acquisition to achieve additional incentives
Right now, I am assisting a profitable publicly listed company identify quality recruitment companies looking for an exit strategy which is timed to benefit from share price increases and eventual market recovery.
Please let me know if you would like a confidential discussion about this listed company’s acquisition strategy and how it may fit with your current or future exit and succession plans.
Tony Hall, Founder, Navigator Consulting
Organiser, Captain’s and Consultant’s Table Forums
22 years of owning, managing, researching and consulting on growth and improvement.