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 R. A. Cohen Consulting
 Newsletter
DRIVERS FOR SELLING A STAFFING FIRM
September 22, 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. 
 
The latest news reports tell us that "Staffing firms added close to 400,000 new jobs in the past year, an indication that the economy continues to slowly dig out of the 'great recession,'" says Richard Wahlquist, ASA president and chief executive officer. "While ASA members expect that growth to continue, they report that businesses are being very strategic about adding back permanent jobs, timing employment increases with sustained increases in demand."

 

In this improving environment what motives do sellers have when considering a sale of their business?

 

Selling your staffing business may be the single largest transaction of your career and there is no dress rehearsal. Most business owners have only one opportunity to sell a business, so it's important to get it right.

 

This is an important decision because of its potentially far-reaching effects on your family, staff, customers, employees and yourself.

 

Sellers rarely decide to put their business on the market on the spur of the moment. A great deal of thought and analysis usually precedes such a decision.

 

Common Objectives for a sale

Most owners have one or more reasons for selling before they make the final decision, which include, but are not limited to:

 

      Creating an exit strategy for the shareholders due to aging, failing health, burnout or a wish to retire

      An unwillingness or inability to invest needed capital in the business

      Cashing in by liquidating some or all of the value in the business.

      Lack of a suitable successor, but a desire to see the firm continue

      Partnering with a larger firm to gain greater resources for growth and access to broader and more sophisticated programs and infrastructure

      The opportunity to participate in managing a larger business, territory or sector.

 

Current Market Environment Tougher

Today's environment for selling is very different from the market of just a few years ago and better than one year ago. Some of the characteristics of the current marketplace are:

 

      An uncertain and less stable economy

      Fewer publicly owned buyers, more regional and local buyers

      More private equity (PEG) money is available to fund acquisitions, but there are stricter requirements to invest       

      Most PEG buyers are looking for firms with annual sales volume of at least $20 million to $50 million (depending on the sector) to serve as a platform for expansion, unless they have their platform and want tuck-ins

      More private firms buying, many for the first time, working with less flexible multiples, fewer human resources to devote to the purchase and less experience acquiring and integrating

      A decrease in single-suitor deals, giving sellers more choice

      Increased due diligence scrutiny of current sales and profit performance by buyers.

 

 

Is there still a market?

Not all the news is negative. There are still buyers available for staffing firms; in fact we continue to have more buyers than sellers.

 

While every buyer likes a good bargain, not all buyers are bottom-fishing for distressed companies. In fact, most buyers want to acquire solid firms that may have easy (for the buyer) to address challenges. Experienced buyers are wary of so-called bargain firms; they may be acquiring a costly albatross.

 

Buyers can make substantial improvements to a staffing firm that is struggling in these times by adding needed capital, offering better workers compensations programs, offering additional services to the sellers' customers, having additional locations and resources for the sellers' customers and by offering more training and advancement opportunities for the sellers' staff.

 

Realistic Valuations are needed

Both buyers and sellers have to be realistic about market value. Valuation has been a source of disconnection on past deals. We find buyers today to be more reasonable in their valuations as fewer good staffing firms are available thus creating a greater demand for high quality firms with predictable results.

 

If the uncertainties in the economy are affecting your comfort with selling your business call us for a free consultation. It is always good to have options and know what can be done.

 

Reply to this newsletter to let us know your thoughts or
if you have any additional suggestions for staffing industry owners getting ready to sell their staffing business.
 
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.
 
 
 
 
 

If you are planning to attend the ASA Staffing World 2010 conference in Las Vegas from Oct 12th to the 15th we encourage you to make time to attend the breakout session on M&A that is co-moderated by Sam Sacco.  The session will be on Oct 14th from 4:30-5:45 PM.  Here is a description of workshop:

 

Mergers & Acquisitions: How to Buy and How to Sell

This session will update you on the recessions 'impact on M&A within the staffing industry, and teach you how to identify the characteristics of a company to build value for selling and buying.  See what the current and future activity could mean to an owner of a staffing company of any segment. Designed to inform both buyers and sellers of companies, this session will cover the components of a transaction from both sides.  Whether you are selling or buying, you need to know the specific items used to value a company such a profit level, client diversification, management strength, market/segment served, and size of company, and more.  You also need to know how to identify if any of these are below par and need to be improved.  This executive level session will cover current value ranges for all types of staffing companies.  Whether you are a large or small company that is a new or veteran organization every owner should have an exit plan and this session will give you the information you need to make it a successful event.

For more information on the conference go to http://americanstaffing.net/convention/index

 


 


 

Bob Cohen                                            Sam Sacco

Partner                                                  Partner

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

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

[email protected]              [email protected]