It’s never too early to start building your recruitment business for exit. In fact, we always advise that you plan for an exit right from day one…
It’s never too early to start building your recruitment business for exit. In fact, we always advise that you plan for an exit right from day one. Taking this long-term approach will not only help you maximise the price you eventually get for all your hard work, it will also help ensure that you sell to the right buyer and preserve your legacy.
With this in mind, here are four things for recruitment companies to consider when it comes to planning for an eventual exit:
1) Long term incentives for key staff
Recruitment agencies tend to be only as valuable as the consultants they employ. The main risk for a buyer is that top performing consultants leave post-transaction. To prevent this, it is vital that you create long-term incentives for key consultants to stay. This could be through enhanced bonus schemes underpinned by a company culture where people are proud to work for the business. For example, share options, often through an Enterprise Management Incentive (EMI) scheme, can align the top team with your exit objectives and help a buyer incentivise them to stay through an earn-out or staged sale.
2) Increase temporary placements
In general, multiples for recruitment businesses focused on temporary staff are higher than those focused on permanent. Temporary recruitment is, by its very nature, more repeatable, which subsequently offers greater earnings potential for buyers. Therefore, when looking to build towards your exit, pivoting towards a greater emphasis on temporary recruitment will certainly enhance the value.
3) A business plan
A clear plan will provide a set of choices based around a number of financial, business and operational levers that build on rather than dilute, your recruitment company’s strengths. This fosters competitive advantage, helps prioritise significant investments of time and money, motivates action toward objectives and improved performance, and mitigates the associated risks. As part of this, building an integrated financial model (comprising a P&L, balance sheet and cash flow) is important to help ensure you control your financial performance as well as to keep you on track with your exit goals. Actioning this plan prior to the sale process helps to build sustained growth which best projects the value of the business to buyers.
4) Identify potential buyers
Researching potential buyers will give you a general feel for the market, in terms of both valuation expectations and their strategic needs. Once you have figured out your most likely buyers, you can tailor your business strategy towards developing the capabilities that are most desired. For example, we have seen that many trade buyers are focusing on temporary recruitment in the tech or life science markets.
Exiting your recruitment business can be a difficult process, but by following these top tips you can increase your chances of maximising its value when it comes to a sale process.
If you'd like to discuss how we can help you fund, sell or buy a business, please contact me or book an informal chat via our website
Oliver Roper is an Assistant Manager - M&A at Shaw & Co
When a specialist recruitment business grew to £103m turnover, its owners asked us to sell the business to a new owner.
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