We spoke to TIARA judge and sponsor, Philip Ellis, owner of Optima Corporate Finance, about TALiNT Partners’ TIARA Awards prgramme and how the M&A is fairing in a challenging market. Philip specialises in advising recruitment businesses on acquisitions and fundraising, primarily in the recruitment sector.
TI: Generati ve AI is dominati ng the news and it has mixed reviews. What is the trade buyer’s view on that? Is it helping to increase the valuati on of recruitment businesses?
PE: To date we have not seen any transactions where generative AI has impacted a deal. HR Tech businesses are incorporating this into solutions and recruitment businesses may be utilising those solutions to improve performance and efficiency, but that in itself should result in greater profitability rather than inflating the valuation multiple. A tech-enabled business is likely to be more favourably viewed by a potential acquirer than one which has failed to adopt technology.
TI: You’re sponsoring the Leader of the Year Award at this year’s TIARA Talent Tech Stars. What is the value of leadership in acquisitions?
PE: Leadership is one of the fi rst things a potenti al acquirer will evaluate, but it is important to disti nguish between two types of transacti ons: a. If leadership is remaining with the business, quality of that leadership is a crucial factor as an acquirer will be interested not only in what has been achieved to date, but also the future potenti al of the business, meaning that management capability remains crucial. b. If leadership is leaving the business following a transacti on, an acquirer will want to establish how much responsibility has been delegated to second ti er management. A business which remains reliant on departi ng leadership is unlikely to be saleable, unless there is a signifi cant discount applied.
The top three considerati ons generally are quality of management, quality of earnings and scalability.
TI: M&A slowed down quite a lot but you’ve been busy. What is really driving activity?
PE: There is a strong demand for acquisitions in the lower and mid-markets as businesses seek to enhance their value as part of their own journey towards value creation and potentially an event of their own. We work with a number of acquisitive businesses of this nature. For sellers, many owners get to a stage where they feel they have taken the business as far as they can and wish to realise value – in part or full – and be come part of a larger business.
TI: What are investors really interested in?
PE: I would say the top three considerations generally are quality of management, quality of earnings and scalability. All of these factors will determine whether a business is fi t for the future and capable of delivering a return on investment for an acquirer.
TI: What is your view of M&A in recruitment, even in an economic downturn?
PE: In my experience, a downturn may lead owners to conclude that the ti me is right to sell, providing an opportunity for acquisitive businesses to expand. The key issues are risk and valuation expectations. Sellers in these circumstances must accept that their business will be less valuable than in a thriving market.
TI: When do you think the sector will recover?
PE: That is a broad question. Some businesses continue to perform well, whilst others are undoubtedly suffering. To me, the key word is confidence and that is an intangible which is difficult to predict. I believe that the war in Ukraine has impacted inflation, which in turn has resulted in conti nuing interest rate rises. Until this stabilises and possibly even starts to reverse, confidence will remain fragile.
TI: You’re a judge at the TIARA Recruitment Awards. What are looking for in the stand out entries this year?
PE: Different categories are judged in diff erent ways, but the consistent themes in winning entries are quality of leadership, strong financial performance and positioning for sustainable growth.
TI: What does being part of the TIARA Awards programme mean to you?
PE: My association with the TIARA Awards goes back almost 20 years to the first awards under the banner of Recruitment International. I am proud to be associated with these prestigious awards, the judging process gives me valuable insight into the variety of ways businesses are developing and in return, I hope I add some valuable feedback and perspecti ve to entrants.
TI: You’re a judge at the TIARA Recruitment Awards. What are looking for in the stand out entries this year?
PE: Different categories are judged in different ways, but the consistent themes in winning entries are quality of leadership, strong financial performance and positioning for sustainable growth.
