At Openreq, as we help staffing firms fill their own jobs in recruiting, we very often run across firms that are either looking to sell their firm or potentially acquire other firms. The sellers are looking to exit for a variety of different reasons - retirement, lifestyle, cashing out, etc.

The buyers are interested in acquiring for a variety of reasons as well - faster growth, market penetration, new service offerings, etc.

The good news is that staffing firms have officially sensed that the economy is on a steady, positive growth curve. And, thus, the staffing industry will most likely continue its own recovery – albeit, a slow and steady recovery.

So, acquiring firms know that there are some good deals out there right now – especially with boutique firms and small to medium sized firms that weathered the recession (but just barely). In any case, there are lots of firms that would be interested in an acquisition right now.

Valuating Your Staffing Firm

Staffing firms are valuated in a variety of different ways including revenue and EBITA (earnings before the deduction of interest, taxes, and amortization), staffing niche or discipline, team make-up, client diversification, and other factors. The relatively standard multiple of 3-5 times EBITA still seems to apply in this market for firms $10 million in sales or greater. Multiples of 0.3 to 0.7 times revenue also tend to be somewhat common for professional staffing firms that are attractive. To get 1 times sales typically requires more scalability. Valuations for firms with lower GMs and markups will be a little lower.

Since most staffing firms typically don’t have any assets to speak of, their book of business and internal teams are the most important factors in assessing a value. Is the book of business diversified? Are the gross margins solid? Do the markups and bill rates reflect market rates? All important factors to consider.

Intangibles are also very important in the assessment of a firm’s value. Are the salespeople also the owners? If so, will they stay on board? Will the clients be difficult or easy to transfer? Who has the client relationships? Are the clients used to working with more than one contact? These factors become even more important when valuating staffing firms under $10 million in sales.

Sell Now or Continue to Grow?

If you anticipate growth, is it better to wait until you reach a certain level of sales before you entertain acquirers? For boutiques, it’s really more about the team, the structure, the client base and the staffing discipline. Since some may not show a lot of EBITA, the valuation tends to rely more on the intangibles. If you feel like you may be able to grow larger in a short period of time – say a year or two – it might make sense to wait until you have reached a higher level of sales before you sell.

However, if your acquirer can help you grow faster by allowing you to add sales people and recruiters at a faster rate, it may make a lot more sense to get a smaller piece of a bigger pie by selling, staying on with an employment contact, and setting up an earn-out scenario. Why do all the heavy lifting by yourself!

Conventional wisdom allows that only staffing firms at $25 million (or preferably $50 million) are really “scale-able” enough to attract the attention of larger firms.

If your firm is tracking a bit below that level, you might consider a calculated growth plan to get you to that higher level – making your firm a bit more attractive.

Contact us to explore your options!

Perrin Peacock
ppeacock@openreq.com
http://www.openreq.com
http://www.recruiter-talk.com
800-231-4172 ext 1

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