Roll Up Before You Roll Out of Your Business

While it’s very common for staffing firm owners to choose to take more time in growing their business before deciding to sell, few know that there is a fix that provides quick growth in a lesser amount of time.  The roll-up strategy is the merging of two or more firms, then selling together for a higher valuation.

When it comes to selling a staffing company, whether large or small, it’s reasonable to want to get the most out of the work that has been put in to build it and sell at the highest valuation possible. Buyers that are looking to acquire commonly look to purchase companies that will yield them the best gains and the least risk. Businesses that are well established and have a much stronger market share tend to be much more lucrative over less developed companies.

In 2018, the majority of the declared companies acquired in the staffing and recruiting industry were purchased for upwards of $30 million. The revenues of these firms are not publicly declared, but it is safe to assume that these companies come with large revenues and a sizable market share. Smaller companies have the option to combine their market values and present it as a new, bigger product to a wider range of buyers. The sum of their collective shares could potentially reach further in the market than they could have otherwise done on their own. Roll-ups are especially prominent in a fragmented market; when a market place lacks big players, it may be wise to consider a roll-up as it gives investors the chance to consolidate smaller businesses in the same market together.

PREMIUM CONTENT:  Conquer Your Cash Flow: Using Data Science to Expose Risks in Your Customer Pool

Roll-ups benefit all parties involved by allowing smaller companies to grow exponentially. Here are a number of advantages that a roll-up merger can bring:

Broadened market share. Buyers and investors are looking to acquire companies in order to instantly boost the growth of their business, and companies with a sizable list of clients are naturally more attractive to investors. Through a roll up, your staffing firm immediately gains a new set of contracts and clientele, thus greatly expanding your market share. This investment consideration is likely one that buyers are willing to pay more for.

Expanded geographic reach. Roll ups provide the buyer an incentive when acquiring merged staffing firms with different headquarter locations, as all parties involved enjoy an expanded geographical reach. Golden One Ventures has facilitated the transaction of such a deal with two small-size staffing firms of the same industry, both firms located on the East Coast. The roll-up gave the buyer two headquarter locations and an offshore office enjoying less overhead cost in Asia. This proved to be a good selling point and equated to a sale with an exponentially higher valuation than if each firm sold separately.

Streamlined back-office processes and technology. When companies merge, there is a potential advantage in combining, synergizing and streamlining their processes. One company’s weak point could be solved by another and create a more efficient and productive business entity. Taking the best of all the companies involved, there is a possibility to improve any aspect, from proprietary technology to marketing to logistics to HR to company culture.

Economies of scale. Larger businesses typically enjoy cost savings and competitive advantages that smaller companies simply don’t. A well handled company merger can provide each business with a larger scope of products and services that may not have been available prior to the roll up. Without having to start from scratch, each business instantly gains new segments of business and are able to save on additional expenses through operational synergies between both firms. This allows them to scale costs and profits by charging less and offering more to their clients.

Wider database of candidates and recruiting staff. When staffing companies come together, they are able to leverage a new group of experienced recruiters and account managers, and a wider database of candidates. This helps provide the current clients of both businesses enhanced services through better customer service and a wider range of candidates to choose from.

If you’re ready to make an exit and cash in on all the hard work you’ve put into your staffing firm, you may want to consider a roll-up to grow your business before going to market and in turn, increase your firm’s valuation. Working with an M&A broker that specializes in deals in the staffing and recruiting industry will exponentially raise your chances at closing a good deal.

MORE: Executing on an acquisition strategy

Eric Allison

Eric Allison
Eric Allison is managing partner of Golden One Ventures, a boutique M&A firm catering to the middle market for the staffing and recruiting industry. He can be reached at eric (at) goldenoneventures (dot) com.

Eric Allison

Share This Post

Tweet

Related Articles

Powered by staffingindustry.com ·