R. A. Cohen Consulting Newsletter

The recent economic indicators have shown mixed results and have caused some staffing firm operators to question how they can succeed in this environment of slower growth than we had experienced in earlier months.

On the negative side, the overall unemployment rate was reported up in May to 9.1%, however, this may be as much a result of many long term unemployed re-entering the market place as they heard positive employment news and it could be due to the casual methods of information gathering used by the pollsters (many calls were placed to consumers asking if they were simply employed or unemployed).  Not the most scientific method for receiving accurate information.

Temp employment was also down slightly in May, but remains up over 9% year-over-year (Y-O-Y). Does this mean that more perm jobs were found and that caused temp jobs to be down or is it because only 83,000 jobs (a very low monthly number) were added overall last month?

While some of the May job data was disappointing, "soft patches" such as these are fairly common during economic recoveries.

On a better note:

Typically Professional Employer Organizations (PEO's) are utilized primarily (but not exclusively) by smaller employers who cannot justify the HR expenditures often needed to comply with governmental reporting. Since PEO coverage increased by 4% more employees'

Y-O-Y perhaps this is an indication that small businesses are hiring again and we know they are the largest creators of new jobs in our economy. A positive sign for the staffing market.

Direct Hire firms have increased their internal staff by 12.4% Y-O-Y. We suspect they would only hire if business has improved and if they believe that growth will continue. Another positive sign for the market.

Since March, staffing firms have reported to Staffing Industry Analysts (SIA) each month that recruiting is now more difficult than sales. This is a great sign for the staffing industry because if recruiting is tough for our customers who can they turn to for help except the experts in recruiting-our industry members. A high tide should raise all ships.

For those office and industrial customers that are complaining to you about high bill rates they should know that wage rates are climbing much faster than our industry's bill rates in these areas as we have seen our margins shrinking for years. Those customers should appreciate the bargains they have been receiving according to SIA.

The bottom line is that economic growth is decelerating its pace but the economy is still growing-just at a slower pace. So make your plans accordingly, don't over expand too quickly, stay lean and capitalize on the economic growth that's available to you.

On the M & A front we continue to see more buyers looking to acquire than we have sellers looking to sell. While some buyers are still shocked from acquisitions made with higher expectations a few years back; the most serious and the most successful buyers are offering reasonable valuations for quality staffing firms. The bottom feeders are generally walking away empty handed. They are beginning to learn that the pricing they used successfully two or three years ago will not work in this environment as the survivors of the recession are thriving again in 2011 and won't give their businesses away.

Intelligent buyers are hedging their bets by making fair offers with strong upside potential that encourages sellers who believe they will continue to grow to sell today and not wait until some tomorrow in the future.

Most buyers are (reasonably) happy to pay for what they get, no buyer wants to be so far extended (by overpaying up front) that they may never catch up and never get above water on their investment. Failures such as these make borrowing money for that next great deal much harder to obtain.

Obviously it is better for a buyer to have their acquisition outperform expectations than to try to explain why it didn't work out.

However, some buyers continue to value their way, their brand, their methodology above all others and inadvertently destroy the value of their acquired properties by making (arbitrary) changes to ensure the acquired company looks like all the company's' other operations with no regard for the people who came with the acquisition or many of the things they did right that made their company attractive to the acquirer in the first place.

Many of today's buyers have seen the folly of their predecessor's ways and are taking great care to preserve what was special about the acquired company and thinking long and hard about how necessary each change they would have made in the past could impact the staff and customers of their newly acquired business. It is not that no changes are being made, there are changes, they are just occurring at a pace that allows the staff to adapt and buy into the new procedures and not feel as if their world was turned upside-down.

As buyers continue to learn how to better integrate their acquisitions, they are finding the results of their acquisitions are greatly improved. Sellers should remember that buyers want them to succeed after acquisition as it smoothes the path for the buyer to make more acquisitions.  With organic growth so difficult for many firms of all sizes to obtain, buying is often a better and faster strategy than building new branches or developing new markets.