 According to staffing industry news reports, the declining economy and lower usage of staffing services has been creating survival challenges for some staffing firms. In previous recessions up to 1/3 of all staffing firms have disappeared. Some staffing firm operators not wishing to fall victim to the ravages of this recession have determined that acquiring a competing firm or two could help strengthen their chances of survival or better yet, enhance their company's position when the economy inevitably rebounds.
This could be sound thinking. Their success will lie in their ability to develop and execute their specific plans.
In the past few months we have been contacted by numerous prospective purchasers of staffing firms with little if any experience in buying or integrating acquired companies. While it is not rocket science, it often takes experience, discipline, solid planning and sound execution. Gaining the experience needed to succeed can be costly.
Be wary if something looks too good
Some of these prospective buyers are actually seeking sellers who will give them their failing branch locations at no cost rather than just close their doors. While we know it may happen at times, it is not really a basis for a sound acquisition plan.
We understand this thought process, if an acquirer can gain the book of business and absorb it into their existing operation at little or no cost it could work out and drop additional profits to the bottom line, especially if they can maintain or grow the acquired business. However, there are reasons that that business is failing and as you have heard "if something seems too good to be true....."
Careful consideration of the factors that have brought those branches to failure is advised. The prospective acquirer may wish to be cautious about what they are wishing for. The may get much less profit and far more headaches and costs than expected.
According to staffing industry news reports it is not realistic to acquire anything of value at no cost for the acquisition. At the very least the acquirer will have additional working capital requirements to fund the acquired payroll and possibly some added internal payroll costs to retain the employees whose relationships control the acquired business. Even if much of the acquisition price of a severely distressed business is paid based on future performance or for retaining the sales from the acquired customers; an acquirer is far better off creating an incentive for the former owner to see the business succeed and flourish rather than having the seller with no stake in the business going forward. Most acquisitions are for far more than a single book of business.
Comment on this newsletter to let us know if you have tried to acquire a staffing firm and how it has worked out.
Reply to this email to let us know how the proposed increase in capital gains taxes may impact the sale of your staffing firm. Contact Sam or Bob, who have successfully completed over 120 staffing industry transactions, if you'd like to discuss M & A matters related to your staffing firm.
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