Staffing M&A Series
“Ultimately, there’s a fundamental reason why people want to invest, and that needs to outweigh any counter balances levelled against that decision.”
In an acquisition, your business could be strategically positioned to unlock a particularly lucrative and guarded PSL, or a shortcut to an especially attractive logo.
They may intend to secure a foothold in a new market, cement their market presence, future-proof their existing companies, or double down on a specialist niche like cyber-security, fintech, or AI.
There could be efficiencies, custom tech, or operations that they want to assimilate into their wider operations.
“The reasoning might be supported by the sum of several things, but what makes you desirable has to outweigh the work involved in making you scalable or immediately profitable.”
Seek out their motivations for investment
“What agency owners should be asking and what they often ask of investors and buyers are very different. Price usually comes before value and it’s a case of “how much are you going to give me?”
Different buyers and investors will have their own unique valuation process, but the universal consideration usually involves taking a benchmark of lag indicators like EBITDA and applying a multiple based on leading indicators and forecasts.
A figure is just a number, but it’s the reasoning that leads them to that valuation that you want to focus on.
“What opportunities and qualities do they see in the business and how can you augment that with the context of what they’re not seeing.”
“If it’s a case of investment and not solely acquisition, what synergy could you have with them and what do those opportunities bring?”
“Whether you’re securing PE or shopping for a buyout, your business has been your child and you want to ensure it’s going to a good home and that it’s going to continue to grow as a good reflection of your involvement.”
A healthy buyout might mean you never need or want to work again, but most owners will return to the fold in some capacity.
Your reputation matters and your attachment to a company will extend long after its sale. You want to ensure their vision and reputation is going to continue to pay dividends.
The importance of having figures and knowledge to guide you
“People expect business owners to know their numbers and have the means to hold them to scrutiny.”
“Nobody wants to be drowning in spreadsheets and documents. Whether it’s a reporting system that can pull the evidence together, or an FD to qualify those figures, both investors and buyers will want to know:
- # contractors out
- Key ratios
- Gross Profit
- Fluctuation on GP %
- Operational costs
- Benchmarks and forecasts
One of our clients that recently engaged with us specifically to sell, plotted a three year course. The perfect buyer appeared, accelerated the process, and they sold within six months.”
“Because we knew the intention, we conducted an initial financial health check and made the business sale-ready. There was very little that the buyer could challenge on price points with everything transparent, clean, and financially streamlined. That’s perhaps the most overlooked element – knowing your financial reality.”
“Having a relevant, experienced, and recent bench of advisors involved in the process and the value of NEDs that can fight your corner and offset an expensive bad decision is invaluable.”
Are you investing equally in your operation
“If I landed in an agency tomorrow the first action I’d take is a financial health check. You can’t know where you stand in your surroundings if you haven’t got a handle on the figures.”
Has an agency documented their end-to-end operation and playbooks to understand what systems are clunky, which processes are wasteful, and where information is siloed. Document it and then ask yourself why you do it this way and could if it be done better.
“Inefficiency will kill scale and nine times out of ten businesses are over-investing in front-end systems and neglecting their back-end. It creates a sea-saw effect that will derail the success of sales by kicking the can down the road.”
“You need good accountancy systems, reporting packages, and pay-and-bill systems that can accomodate scale. If you jump from 100 to 600 contractors and you can’t manage that swell in an accurate and timely fashion, you’re hamstringing your growth.”
“If you can’t see who the underperformers are you can’t intervene, if you don’t have a process for identifying, nurturing, and retaining future leaders you’re creating risk. Both investors and buyers will want the deck to stay standing if you or leadership leave.”
“Monthly management accounts in place that show the division lines between P&Ls, keeps the numbers in check, and shows crawl is happening in the right place.”
“Undertaking a fundraising or buyer journey can be costly and there are things you can bring into line before you embark on the journey. Minority shareholders, poorly performing brands, and unattractive sectors are all red flags in the conversation that you’ll either need to address or qualify your reason for having them.”
Avoid a bittersweet goodbye
Different buyers want different things and some will want to clean shop during the transition. Others might want leadership to facilitate the transition and smooth over the bumps and cracks.
“When you’re executing someone else’s vision that’s built on the shoulders of the vision you created, it can be a bittersweet relationship and create friction. You have to consider if that’s something you want.”
Agencies should avoid seeing the sale as the finishing line and approach any acquisition or investment round with a visible next-step or exit plan. One that acknowledges the ongoing attachment the company will have.
About Poonam Mawani FCCA, Director, Azuki Accounts
A qualified accountant whose journey started in practice within audit & assurance before moving into corporate finance and entering the recruitment industry at Hamilton Bradshaw. Poonam climbed to become FD for a portfolio of James Caan’s companies, and successive FD of Spencer Ogden (£18m to £50m) and Milestone Operations (acquired by Staffline). A period of consultancy working for trade buyers encouraged Poonam to found Azuki Accounts – an end-to-end back-office partner and advisory for recruitment businesses with auspicious growth journeys.