Staffing M&A Considerations During and Beyond the Pandemic

Covid-19 has dramatically disrupted the Staffing & Recruiting space, raising many new considerations for companies participating in pending staffing M&A transactions.

The issues faced by staffing firms vary from a case to case basis, but there are a number of topics that are expected to arise for staffing firms participating in M&A transactions.

There are a few key considerations that your staffing firm might want to consider with respect to Covid-19 and the potential impact on your staffing M&A deal.

1. Takeover Defense and Mitigation

Due to economic fallout from the Covid-19 pandemic, many staffing companies around the US are left vulnerable to unsolicited acquisition proposals. There are a handful of new items to consider during a staffing M&A transaction during Covid-19.

Response Planning. If your staffing firm feels vulnerable, you might want to prepare a response plan ahead of time. This plan defines the roles and responsibilities among members of your board of directors, management, and outside advisors. This plan includes a comprehensive communications plan for responding to various scenarios during a staffing M&A deal.

Strategic Planning. Creating a response to bidders and acquirers will require an up-to-date strategic plan, including long-term forecasts. This will guide your staffing company toward making fair evaluation decisions. Strategic planning is most credible when done prior to any proposals for acquisition. Your staffing firm having a plan set in place beforehand makes it easier to evaluate what disruptions caused by the pandemic require review.

Shareholder Engagement and Monitoring. To sufficiently defend your staffing firm against an unfavorable acquisition requires the support of your shareholders. Establishing positive relationships with key investors before any acquisition will give your staffing firm a competitive advantage over those that haven’t yet familiarized themselves with the company’s stockholders.

PREMIUM CONTENT: Companies Looking to Acquire Staffing and Workforce Solutions Firms: 2020 Update

2. M&A Agreements

Negotiating acquisitions during a global pandemic may lead to the unpredictability of your M&A transaction, including questions about future performance and risks that are put forward by Covid-19 under the agreement. This places stress on certain aspects of the acquisition agreements post-pandemic.

Valuation issues. With the staffing market booming prior to the Covid-19, it may be unrealistic for both parties to expect the same valuations that were set before the pandemic hit. Manage expectations due to the unpredictability that the pandemic has caused.

Earnouts. An earnout is used to bridge the gap between what your staffing firm seeks in total consideration and what an acquirer is willing to pay up front.

If you’re able to agree upon realistic milestones, during and post-Covid, this may be a wise option to take. It’s important to consider and consult with professionals to guide you through the process.

Purchase price adjustments. Purchase price adjustments are created when financials deviate from the ‘normal’ level at closing. The target levels are usually determined by the historical balances over a period of a few months.

If your staffing firm is affected by Covid-19, you may see dramatic reductions in accounts receivables, including deferring payments to manage liquidity. You will want to consider the impact that the pandemic could have on the agreed-upon purchase price pre-Covid.

Closing conditions. In this current economic environment with rapidly-changing circumstances, you may need to shift some expectations with your acquirer — the deal’s closing conditions take on a big part of that.

Outside dates and termination. Covid considered, it’s important to be careful when you select an “outside date” that provides you and your staffing firm with enough time for unexpected delays and space for extensions for areas that will particularly be affected by timing.

3. Due Diligence

Issues that weren’t considered pre-Covid will be put under a microscope because the circumstances have changed.

Your staffing firm may be more or less affected by this pandemic depending on the industry you serve. Take a look at your contract and consider altering your process. Covid-19 has raised risks, it’s crucial to comprehensively review all contracts to avoid post-closing surprises.

4. Preparing for Closing and Beyond

Whether you’re in the middle of a pandemic or not, the time between signing and closing a staffing M&A transaction can be nerve-wracking. Your staffing firm has to maintain standards of business while responding to unforeseen issues that come with meeting milestones and goals that fall under the acquisition agreement.

When negotiating deal terms in the current environment, it’s important for you to focus on your business’ response to the ongoing pandemic during this pre-closing period. Building a team, finding an advisor that understands your needs, pinpointing what part of the acquisition has to be modified, and coming into an agreement between the parties is key to closing the deal during and post-Covid.

 

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

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