Today’s M&A Buyers Not the Usual Suspects

M&A_largeStaffing M&A activity continues to intensify, as more staffing M&A transactions were announced in 2012 than any time in the past 5 years.  This activity should continue throughout 2013, as the M&A window is now open and reputable buyers continue to lament the fact that more quality staffing businesses are not for sale.

But who are the current staffing company buyers?  It’s certainly not the large, publicly traded staffing companies that often come to mind; in fact, public companies accounted for only 17 percent of the announced staffing M&A deals in 2012.  Many of the historically acquisitive public staffing buyers (MPS Group, Comsys, Spherion, etc.) have been acquired themselves, and the largest staffing companies are no longer excited about acquiring the typical $10-50 million revenue staffing business.

PREMIUM RESEARCH: Reported M&A Multiples and Activity: 2012 Staffing Company Survey

In addition, there are many private groups that hold themselves out as buyers, but they really don’t have the financing to complete a quality deal.  When dealing with this type of buyer, you should ask about their financing and qualify them as a legitimate buyer early in the process.  Cash at close with a reasonable earnout is the customary structure for most quality staffing company transactions.  If the buyer is resorting to long seller notes or thinly traded stock as consideration (known as “your price, our terms” deals), reconsider moving forward.

Much of the current market’s acquisition activity is driven by well-financed private buyers, including staffing companies with private equity backing.  Private equity seeks to invest capital either into new platform acquisitions, which in the staffing industry are typically later-stage companies with EBITDA in excess of $3-4 million, or in follow-on investments where the acquisition accomplishes a strategic initiative for the larger acquiring company.  Buyers only proceed if the acquisition somehow improves the overall organization and aligns with the long-term strategic growth plan – which may involve the addition of a new geography, service line, customer or management talent.

The perception of this “strategic fit” has the greatest impact on valuation, especially for those higher-end valuations that every seller wants to achieve.  During our typical sale process, we receive multiple offers for our seller clients.  While the valuation range for most staffing companies is well established, it never ceases to amaze me that we usually see a 50 percent variance in the valuation range of the offers received.  This is often the case because one buyer sees the acquisition as a nice add-on, but only if they can buy at a reasonable price and on reasonable terms.  For another buyer, the acquisition may fill a very specific strategic need that would compel them to pay a premium.  Accordingly, it is important to know who the active buyers are and to market your company to multiple buyers, as opposed to courting one buyer that may have approached you directly.  It’s impossible to identify the best buyer (who is willing to pay the most for your business) without seeing multiple bids.

MORE: How to Get a Good Price When Selling a Staffing Firm

Further, the pool of active staffing industry buyers changes frequently.  New buyers emerge while others leave the market as they exhaust their capital, integrate their completed acquisitions or prepare for their own future sale.  There are very few serial acquirers in today’s staffing M&A market; a buyer that has completed acquisitions in the past won’t necessarily continue to be active on the acquisition front, especially as that buyer fills out their geographic capabilities.

As long as the overall economy continues to grow, the M&A window should stay open in the staffing sector.  It’s also certain that the buyer pool will continue to change and evolve as private equity invests new money into the industry. Staying informed of acquisition trends, as well as identifying the most aggressive and active buyers, is essential to realizing the best possible price and terms for your business.

John Niehaus
John Niehaus is a managing director with Duff & Phelps Securities, LLC. He has been actively involved in the management of staffing-related M&A transactions for the last 17 years. He can be reached at john.niehaus (at) duffandphelps (dot) com

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