It’s a good time to be a private business. Debt is widely available, and private equity still has most of their mythical “wall of cash” to put to work. Seller-multiples remain high and there is a new breed of international investors looking for the right UK opportunity.
However, uncertainty appears to be the norm, public markets are quieter and Brexit continues to paralyse most businesses looking to make investment decisions. So what can UK recruitment companies do to maximise the value of their businesses?
The sector contains a broad range of businesses, but there are a number of common themes that have emerged from our conversations as to what potential investors are currently focused on when looking at opportunities in the recruitment space. How many apply to your business?
- Recruitment companies with an established and successful international footprint are considered more attractive.
- Niche operators are seen as attractive as they can create barriers to entry through specialist knowledge and access to candidates, often resulting in better margins
- Brand strength in the relevant market is key to support value
- Buyers are attracted to more flow based contractor-focused businesses opposed to the perceived cumbersome permanent search
- Compliance must be at the centre of the strategy, this is a fundamental, deemed risk around compliance will deter buyers
- A strong 2nd tier management will give buyers the confidence to pay a premium, they need to be convinced that that value sits with management, not shareholders
- Concentration risk is important, not only client concentration but also consultant concentration, buyers are nervous if a business appears too reliant on certain customers or consultants
- Scalability – what is the transformation agenda? A buyer can pay full value if the business has a platform that will support future growth.
So what can management teams do to ensure their business is more attractive? Here’s something to get you started. But remember, the CEO/CFO to-do list applies to any route you want to take, fundamentally – it’s good business practice:
- Establish the foundation – make sure that your control environment and forecasting processes are robust, you get value from your audit and you are on top of tax compliance and opportunities.
- Driving high performance – develop a clear strategy for growth, whether this is in the UK or internationally. Understand how you benchmark against your peers. Cash generation should match growth.
- Getting ready - the mistakes we have seen companies make are normally because they have not prepared early enough. Have you got the right Board to take things forward? Have you got the bandwidth to cope with a growth strategy alongside running the business day-to-day?
- The next chapter – how can you deliver on your promises? If you managed to get the first three elements right, you are halfway there. How can you work with a new investor and make sure that you get value out of the relationship?
Whether it is taking another step along the “Road to Exit” or taking an opportunity to look outside these shores and your business is “Going Global”, help is at hand to guide you along the way. For more information, please get in touch with Oliver Gale (Head of National Markets Recruitment) on email@example.com.
Find out more about how KPMG can support your business here.