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 R. A. Cohen Consulting
 Newsletter

Can you Time the Market-when should I sell?

May 6, 2010
Greetings!

After 20 years as advisors in over 120 staffing industry mergers and acquisitions, we've gathered many insights for sellers and buyers that we would like to share with you. We hope you will find them informative and enlightening. 
 
 
  In our experience, excellent timing of any market is more a result of good luck than an exact science. It is often only after the market has shifted do we recognize a particular (earlier) period as the "high" or "low" point in any changing market environment.

 

However, there are some indications that the Staffing M & A may be ready for a shift. Presently, we have more "Buyers" than "Sellers" of staffing firms. The last time the industry was in these circumstances was 1998. For almost all the years since, the market had more companies for sale than acquirers to buy them.

 

According to the economic laws of "supply and demand" and in actuality this twelve year period was primarily a "buyers market". That is, since there were more sellers than buyers, those that were acquiring had the upper hand to buy at lower prices and on more favorable terms that they preferred.

 

Recently, Staffing Industry Analyst conducted a survey titled:

 

2010 Staffing Company Survey: Staffing firm acquisition plans, who wants to acquire what in 2010.

 

Their findings reinforce what we have been seeing in most sectors.

 

Key Findings:

�The two areas of staffing most frequently cited as preferred acquisition targets were healthcare temporary staffing and IT temporary staffing. Interestingly, there is significant appetite among non-healthcare staffing firms for buying into the healthcare staffing sector.

 

�Staffing firms also reported some interest in acquiring a firm engaged in something other than temporary staffing. The most common identifiable target interests were statement of work (SOW) consulting, independent contractor compliance/payroll processing, direct hire, HR consulting and RPO.

 

�The area of staffing in which acquirer interest most exceeds supply is clinical/scientific temporary staffing. For every staffing firm reporting that clinical/scientific is its top segment, there are roughly two acquirers who want to buy that firm.

 

�At the other end of the spectrum, there are fewer potential acquirers than targets for office/clerical, engineering/design, logistics and direct hire.

 

�Within the U.S., the area most frequently cited as preferred for expansion was the Southeast U.S., followed by the Midwest and Western U.S.

 

What does this mean to you?

With the budget deficits that exist in our Federal and many State governments we can expect increased taxes in many forms. When campaigning in 2008, Mr. Obama's democrats were eyeing a capital gains tax increase, which is an easy area for their constituents to target as many of their faithful believe that high earners do not pay their fair share of income taxes. This is a very broad and contentious subject best left for another day for debate.

 

However, while the Democrats control the House and Senate, they may try to push through an increase in Capital Gains Tax which we suspect would influence a lot of potential sellers of staffing and other firms to enter the M & A market. 

 

A lot of sellers coming to market would likely have the effect of lowering prices and terms available from buyers as a "Buyers Market" would once again exist.

 

Our suggestion for those firms that are contemplating selling their business in the next 2-3 years would be to consider getting in front of the possible market shift and adjusting your timetable forward while the numbers still work in your favor.

 

We know many firms are just beginning to recover their lost sales and profits of the prior 2 years; however, how much more would you have to increase your profitability to offset a 5%-10% or more increase in Capital Gains Taxes?

 

We trust that with a full knowledge of all the factors that you will make a wise decision for yourself and your family.

 

 

Reply to this email to let us know your thoughts on this subject. 

 

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.

 

http://www.racohenconsulting.com/contact.html

 


 

Bob Cohen                                            Sam Sacco

Partner                                                   Partner

R. A. Cohen Consulting                        R. A. Cohen Consulting

(416) 229-6462                                     (910) 509-0691

[email protected]              [email protected]