"Dealmaking [is] a profession unto itself; the world’s highest paying profession. Things don’t just fall into place by accident. A good dealmaker understands that it’s his job to finesse things into place." - Anonymous
M&A in the recruitment sector is currently still booming. BDO recently reported that M&A activity has been consistently strong for the past few years (with the number of M&A deals in line with that of 2016), suggesting that so far (touch wood) external socioeconomic factors, such as Brexit, aren't affecting our market.
Private Equity houses are getting more and more involved in the staffing industry, listed recruitment companies are performing better than the bulk of the FTSE market, and there is a particular demand for M&A in the education and IT sectors. Essentially, M&A is thriving in the recruitment industry.
With so many buyers deciding to either merge or acquire other recruitment companies, I thought I'd reach out to some of our industry's most experienced M&A specialists and pick their brains about what advice they would give to future dealmakers.
Every great deal needs someone great to lead it. As Anonymous says above, even if all the individual components work well together, a deal doesn't just fall together, you need someone to finesse it into place. In the same way that Manchester United had many players from the Golden Generation, yet still needed an Alex Ferguson to lead them.
A mistake that many recruitment firms make is not getting a strong, strategic financial leader to take complete ownership of the M&A process. If you don't have one person accountable for it, then it either won't happen or it will happen but at a cost to shareholder value.
"One of the classic mistakes a finance function can make when it comes to M&A is to not have a dedicated, experienced, commercial finance professional whose role is to become the project manager carrying out the financial due diligence and liaising with the professional adviser team." - Simon Lawton
This one probably sounds a little ominous - but as my director, Alan McBride always tells us about recruitment,
"It's not done until it's done, and even then it's not done."
The same can be said for M&A. You need to be setting time and effort aside prior to the closing of the deal for what will happen afterwards. You are integrating not only a business and its controls, processes and finances but also the people, the cultures and the aspirations. This needs to be a very smooth and straightforward process as it's the first insight that (both sides of) the M&A will have into their new life.
"During an acquisition process, most finance teams are heavily involved in the due diligence part of the process, ensuring their businesses do not overpay and have good evidence for their negotiations. These projects are often highly pressured with people working late into the night and so it's very common that there isn't sufficient time put into the post-merger transition. However, the weeks and months immediately post the deal being done are where the future value is made or lost and failing to prepare adequately for this before the ink is dry can spell disaster for acquisitive businesses." - Saira Demmer
Going through M&A in the recruitment sector (or any sector, I imagine) can be a Herculean task, with very little sleep and a lot of ups and downs. The journey from idea to acquisition can be complex and not always a clear, straight line. This can sometimes haze the original goal and put the focus on "just getting it bloody done." This is not necessarily the most fruitful mentality...
You need to have established and decided upon set goals with you CEO, ensuring that the finance function can keep that goal (and shareholder value) set in their mind even when the going gets tough.
“In order to achieve a positive ROI an acquirer must be prepared to spend significant time to consider the strategic value of a merger or acquisition weighing up the potential positive value added upsides against the potential costs and risks. A clear view by the acquirer on the expected outcomes will ensure that the merger or acquisition adds shareholder value as intended. A significant amount of time must be spent up front in planning the merger or acquisition to assure that expected outcomes are understood and agreed to." - Stephen Segel
It's a difficult balance to strike. You're trying to negotiate the best possible deal for your business, but the people you're negotiating with are potentially your future colleagues. It's important to remember when you're playing hardball with "Jeff" that you might also be sharing a kettle with "Jeff" from Monday to Friday in six months' time. "Jeff" might get you for Secret Santa next year. You might be tied to "Jeff" in the three-legged race at the next company sports day. You might be sat opposite "Jeff" every day, offering to make each other tea in the morning.
You need to be willing to play hardball, but do it in an emotionally intelligent way. You're representing your business during this process, you need to show that post-acquisition it will work. Part of that is showing that you're the type of people the acquiree can work with. Unless you want "Jeff" spitting in your tea and getting you horrible socks for Secret Santa.
"It is so important to strike up a positive working relationship with the CEO/CFO of the target company so the flow of information can happen quickly, remembering that post-deal the same people may be working within your group if the acquisition completes. - Simon Lawton
When Robert Baden-Powell first decided upon "be prepared" as the Scouts' motto, someone inevitably asked him what they needed to be prepared for.
“Why, for any old thing,” he replied.
When planning for M&A you need to channel your inner Baden-Powell. Ensure that you have a set plan and deadlines for each milestone. Time is infamously the killer of deals, so to reduce this risk you must ensure that you have prepared sufficiently to not cause unnecessary delays.
"Start planning the integration as soon as you agree on a letter of intent and start the process to acquire the target company and always be honest with the vendors and management team of the target what your integration and strategic plans are." - Mark Garratt
Walking away from a deal, despite sometimes being the right decision, can be the hardest one. If you've worked tirelessly on a project for months-on-end, you want to see it come to fruition. You want to see a tangible result for your hard work.
You need to go into the process fully prepared to walk away if needs be. As the waters become less muddied around the acquiree you need to be consistently reassessing whether the figures and information are in line with your business' goals. Sometimes your best investments are the ones you don't make.
"Having finally planned and executed effectively, a buyer should still be prepared to walk away from a transaction where the outcomes deviate too far away from the initial planned and agreed expectations." - Stephen Segel
"The finance team is the face of the acquirer business and should always try to be responsive, considered and pragmatic to ensure a smooth process but at same time not be afraid to pass on negative news so the acquirer does not overpay, or even recommend the deal should not happen if it does not stack up from an economic, cultural or control perspective." - Simon Lawton
The first key takeaway from this article is to ensure that you hire a commercial, strategic finance professional who will take complete ownership of the process, ensuring that someone is accountable for getting your business the best deal. Secondly, you need to prepare the business for the months post-acquisition (these are as crucial as the months running up to it to ensure success). Thirdly, you need to establish your key goals and objectives, make sure they are uniform across the business, and keep them in mind throughout the process. Fourthly, don't forget that you might soon be working with the people you're negotiating with - never forget that you are representing your business in your correspondence and communication with them. Penultimately, you need to be completely prepared. As my GCSE history teacher always said to me, fail to prepare and you are preparing to fail. Lastly, don't be afraid to walk away from the deal (no matter how far through you are) if it will no longer increase the shareholder value.