Media Coverage

M&A Frenzy Changes Industry Landscape

Executive Recruiter News, October 1998, p. 1, 5 - ©1998 by Kennedy Information LLC - Buy or sell, merge or acquire, there may be no better time for executive search firms to make a strategic move.  Mergers and acquisitions are grabbing headlines, and whether they're motivated by the promise of high valuations and the chance for aging principals to cash out, or by the fear that the good times are slipping away, recruiters are talking to recruiters, making deals and changing the industry's future. 

The newest big kid on the block, publicly held TMP Worldwide - through its new search division, TASA Worldwide - has been the most active acquirer in the industry in '98.  Following its acquisitions of Johnson Smith & Knisley, TASA International and Barcelona-based Europ Consultants, the recruitment advertising and Internet category-killer buys Morgan & Banks Ltd., Australia's largest executive search and selection firm, with nearly $194M in total revenue in its financial year, in a multimillion-share stock swap.

And more acquisitions, ERN has learned, are imminent.  But TMP Worldwide is neither the first industry outsider nor the first public company to change the playing field for the search industry.

Accustaff Inc., the fast-growing, publicly held staffing company in Ft. Lauderdale, buys Diversified Search Inc. in Philadelphia (ranked #27 in the U.S. with $9.5M in '97 revenues).  And professional services firm ProfitSource acquires DHR International (ranked #10 in the U.S. with $23M in '97 revenues).  Also notable are three other public companies turned search players: Headway Corporate Resources Inc., parent company of both the Whitney Group (ranked #16 in U.S., $15M in '97) and new subsidiary, The Carlyle Group Ltd.; Staffmark, which acquired Strategic Legal Resources; and Interim Services Inc., with its business unit, Stratford Group.

"They see that one plus one makes more than two, if it's a good partner... [and one with which] they can grow their business faster," TASA Worldwide chairman Gary Knisley says of the firms, like his, that have decided to buy or sell and those trying to broker such deals.

The harbingers of the acquisitions to come in '98 were Lamalie Associates Inc.'s acquisitions of the Chartwell Partners of San Francisco in January and Ward Howell International (#9 in U.S., $26.5M in '97) just weeks later.  Heidrick & Struggles followed suit soon thereafter by acquiring Fenwick Partners Inc. (#31 in U.S., $6.4M in '97).

But those who would think that only big firms need be interested in all this merger and acquisition activity would be wise to think again.  It seems everyone is talking to everyone about potential deals, and a look at some of the most recent marriages shows that recruiters in firms of all sizes should keep abreast of this trend.

For starters, not all the M&A deals can be defined as acquisitions.  Case in point is the recent decision by The Heidrick Partners Inc. ($4.5M in '97 with four recruiters) to join the H&S team for the first time since Gardner Heidrick splintered-off from the global giant in '82.

Some of The Heidrick Partners' staff, including Robert Heidrick, will make the move, and the firm will no longer do business under that shingle.

Other recent deals include TravCorps Corp.'s acquisition of healthcare boutique Cejka & Co. (#23 in U.S. at $11M in '97) and Witt/Kieffer Ford Hadelman & Lloyd (#11 in U.S. at $21.9M in '97) and its deal to acquire Educational Management Network.  Then consider the deal between two New York-based new media recruiters, acquirer Able Associates Inc.  And don't overlook Ray & Berndtson's acquisition of high-tech boutique Holland, McFadzean & Associates, with a staff of three in Palo Alto, CA, and revenues of about $1.5M a year.  Then comes the acquisition of finance and accounting specialist Corporate Assets by Sacramento-based Wilcox Bertoux &  Miller.

1998 M&A DEALS

Source: Kennedy Information

Our conclusion: ERN's annual ranking of the top retained search firms in the U.S. will look like it's been turned on its head next year. Michael Flannery, managing director of Redwood Partners, says his Madison Avenue firm was looking for a strong brand, a pioneering new partner and a good opportunity when it acquired Able Associates Inc.  "You can build an operation recruiter by recruiter or through [acquiring a whole firm]," he says.  "There's definitely a window of opportunity in our market right now."  The Internet is the future, Flannery adds, "and that's where we live."

As for other firms that are riding the acquisition trail, he says, "I think they're trying to strengthen their position.  For us, it's just a part of the whole game plan."

Janet Jones-Parker, managing director of Jones-Parker/Starr and former president of the AESC, says her firm has been contacted by a number of search firms and outside companies wanting to acquire reputable, small to medium-sized firms and to lure individual recruiters.  "There are a number of discussions underway.  We've made a number of these types of introductions," she says.  "We believe that this consolidation process will continue.  We will continue to see staffing companies and consulting companies get in the business.  They look at executive search as a good business to be in, a profitable business."

And if the concentration of the largest firms continues, Jones-Parker predicts, the industry will ultimately have about a dozen large retainer firms with annual revenues over $75M.

ERNCOMMENT: Size doesn't always matter - clients want quality service.  Focusing on a niche will become increasingly important to boutique firms if they wish to differentiate from the emerging staffing giants.  But boutiques will continue to strive, and indeed thrive, by focusing on their customers' senior staffing needs.

Learn more about Kennedy Information LLC and Executive Recruiter News at http://www.kennedyinfo.com.