Best Practices for Acquiring a Staffing Firm
Is it Time to Grow?
There are many reasons you might want to achieve growth through staffing firm acquisition. Maybe it’s a new market or vertical you want to enter, diversification of your services, or market expansion within your vertical. Whatever the reason, here are some best practices when it comes to acquiring a new staffing firm.
Best Practices for M&A Research
Assign an M&A Team.
And give them a clear mandate with your company strategy behind it. You will have to decide whether than team is in-house, or you hire an outside firm. What is it you are trying to accomplish? New markets? New products?
Strategy Drives Selection.
Not the other way around. For instance, if your strategy is to acquire companies in a certain vertical with an already existing strong leadership team and be “hands off”, stick to those parameters.
Stick to Core Competencies.
For better results, you want companies that have similar culture and strategy so that the integration will be easier.
Develop Your Target List.
To develop your list more, ask internally and also externally. Ask your customers and internal sales force for ideas as well as exploring industry associations and trade shows.
Network with Industry Experts
Network with accountants, lawyers, consultants, private equity firms, investment bankers, business brokers, and recruiters/search firms to build your list.
Build Screening Criteria.
Build your screening criteria based on factors like market attractiveness, competitive position, value creation, and risk.
Develop Detailed Profiles.
Once you have screened down your targets to a few likely candidates, it's time to do your due diligence and build detailed profiles on each target.
Create a Master List.
Once you have selected some candidates, create a big list of all targets and winnow your way down from there based on screening criteria.
Best Practices for Valuation
When determining what you are willing to pay for a company, it all comes down to cash flow, risk, and growth. Here are a few things to keep in mind:
The deal structure impacts the overall value of an acquisition. Have you considered taxes or other contingent liabilities in the overall cost?
Pick a discount rate – aka, the rate of return used to convert a series of future anticipated cash flow from a company to present value - based on the risk of deal, not the average cost of capital. That might mean using different discount rates for different parts of the deal.
Remember to factor in potential friction points like loss of customers, complexity, timing, and regulatory issues.
Factor in competitor response to your scenarios. Will margins be reduced due to pricing pressure or sales impacts by the disruptions that come with integrating two companies?
Best Practices for Due Diligence
ASK THE "BIG QUESTIONS"
These should be focused on value drivers for your company.
DIG DEEPER THAN THE DEAL BOOK.
This might mean building your own proprietary view based on customer interviews, supplier talks, and employee and competitor questioning.
IDENTIFY CULTURAL DIFFERENCES EARLY ON.
The sooner you know what to expect, the better informed you will be throughout the deal.
SET A WALK-AWAY PRICE
And be prepared to walk away at any point.
THINK OF DUE DILIGENCE AS MORE THAN LEGAL AND ACCOUNTING.
You want to keep in mind your “why” and what drives value and this requires digging deep. Why are you acquiring new business? What are your goals and does the firm you’re looking at meet them?
CONSIDER YOUR RISK PROFILE.
Are you willing to take a risk on potential returns, or are you more risk averse as a company?
Best Practices for Integration
Let's say you have implemented all of the above advice and just bought a staffing company.
Now, and you want the transition to go smoothly. Here are some best practices to ensure a good experience:
01
Get the right team in place quickly.
Get the senior team in place soon after the merger announcement. Managers need to fully buy in to the new vision and culture, and it may require tough decisions on your part. The earlier, the better.
02
Deliver a great Day One.
Start on good footing by identifying and resolving critical Day 1 decisions first. Make sure every employee knows who they report to, they know who to contact for HR, maintain continuity in payroll, ensure managers are prepared to answer employee questions, etc.
03
Resolve culture issues quickly.
Culture really does matter – pay attention to it and how you can integrate. What are the important qualities you need to communicate? What crossover is there with their previous culture?
04
Communicate a passionate vision for the future.
This will help you win over the hearts and minds of both parties. This should come from the top, and also from managers. Tell your team what you hope to accomplish. Your goals. Your why.
05
Protect your best people.
Competitors tend to strike when you are most vulnerable, aka right after an acquisition. They will play up uncertainty and come in with incentives and offers.
06
Create a structured integration process.
Use simple process tools to get the process done quickly, because speed does matter. Have written documentation and processes to explain the transition, and arm management with answers to employee questions whether than is Powerpoints, documents, videos, etc.