How to build market value for your recruitment agency

Many recruitment company owners start their agencies hoping to be able to sell one day, but most fail to plan or prepare for market value. When the time comes and they are looking to sell, it’s often a scramble to get all their affairs in order, and unfortunately, most are sold at a lower value because of simple and avoidable mistakes.

With the labour markets in 2022 beginning to reopen, agency mergers and acquisitions are back on the table as smaller agencies seek to expand their geographical footprint and larger recruitment agencies hope to purchase businesses for their expertise and their high-value
contract books.

Andrew Cassin, the founder of Acquisiti and Cassin Advisory, recently spoke at an Oncore client event with CEO Damian Bridge about preparing recruitment agencies for an eventual sale. He touched on several key topics on the ways agency owners can structure their companies to be of the highest market value.

Preparing for Sale

It can take six to twelve months to sell from the day you pull the trigger and “engage an intermediary” like Andrew. Much of this depends on how prepared the agency is for sale, the strategic value it has created and the market.

The number one consideration for any buyer is; is this business sustainable?

A smaller business is potentially less sustainable than those with larger teams. This is primarily attributed to the reality of being overly dependent on its owner for revenue generation, leadership, client relationships and billing, which makes a business less desirable. Buyers want to be assured that there are teams and processes in place to keep the ship moving.

Andrew also confirms that a recruitment agency focused on building a contract book is far more valuable than a perm agency. An industry rule of thumb is that 80% of your net revenue should come from your contract book, due to the annuity nature of that revenue stream. At this benchmark, contractor margin covers operating costs, leaving permanent placement fees as net profit.

Strategic Value for the buyer

It’s important to consider ‘value’ from the perspective of the buyer. The decision to pursue an acquisition is usually to fast track a growth strategy, either geographically, to increase capability or capacity or to achieve greater financial value themselves.
Typical buyers are larger privately-owned companies that will target acquisitions of approximately 30% of their existing size. Offshore acquirers also see Australia as a safe place to deploy capital, make themselves more appealing and more valuable to the market, and grow their global footprint.

Another category of motivated acquirers is financial buyers such as private equity. A well-prepared business can be appealing to this group, as they have more than $13 billion in “dry powder”, which is uninvested capital, looking for the right investments (as of December 2021). So if your business meets their parameters, you’ll likely have a ready-made market fighting for the right to hand over the cheque.

The key is to know who to sell to and orient your business to a specific buyer profile. Andrew detailed that it can be “really dangerous to let the whole market know that you’re on the market, best to be a very discreet process, and keep it targeted to specific buyers.” It is critical that preparation efforts are focused on building an experienced advisory team to guide you through the process.

Understanding the market

Whilst “everything is saleable at the right price”, the reality is that the best outcomes come from being prepared. Business owners still need to be realistic about the market, as there is often a gap between vendor expectations and what the market will pay.

There will come a time when you start thinking about the value of your agency and its future sale. You will need to stop working “in the business” and start working “on the business.” Your focus as the business owner is no longer on the products and services of the business, but on the business itself being the product, the asset, and knowing who will buy it and why. And it’s never too early to think about this.

You can watch the full webcast here and learn many more great lessons from our 40 min growth session with Andrew Cassin.

Andrew’s book ‘On Your Terms’ is available on Amazon here.