Deal Makers - Is there really a buyer for every business?

What’s really happening in recruitment M&A right now?

In this episode, Paul Masters from Sovereign Private joins us to unpack the shifting landscape of agency mergers and acquisitions across Australia in 2026.

We explore why deal activity has slowed from the 2022–2023 highs, and why today’s transactions are increasingly favouring high-performing niche agencies over generalist firms. From valuation multiples to what “strong” actually looks like in the current market, this is a grounded look at how economic conditions are reshaping pricing and expectations.

We also get into what really happens behind the scenes. How buyers stress test growth forecasts, why generic projections don’t hold up, and what a credible EBITDA bridge needs to demonstrate to make it through due diligence.

Paul also explains the practicalities of deal structure, founder dependence, earnouts, and the critical role of a strong second-tier leadership team. 

Paul also shares a surprising insight from offshore buyers across Japan, Europe, and the US. If you’re thinking about growth, exit, or just want a clearer view of the market, tune in.

Hosted by APSCo Australia's Lesley Horsburgh

To learn more about APSCo Australia, head to au.apsco.org 

Transcript

Welcome And 2026 Market Mood

SPEAKER_00 0:00

Paul, welcome back. I want to say Happy New Year, but it's actually way too late to do it. But it is our first deal makers podcast for 2026. How are you?

SPEAKER_01 0:09

Yeah, great, great. Long, long overdue. I think the the last one was with Jed Mason, which which we did live. And um, yeah, it's a lot's happened since then.

SPEAKER_00 0:20

It certainly has. Yeah, that was a lot of fun. Yeah, I think I think it's fair to say that the um the market took a bit of a turn. Um and and you know, it it was in a a different state for quite some time, but then the end of the last year, I think was was another twist again. How would you say now we're we're almost midway through April, how would you say 2026 is shaping up so far in terms of MA?

SPEAKER_01 0:50

Yeah, well, a lot a lot more positive than this time last year, that's the that's for sure. I think, you know, we were you know, this time last year we were we were really coming off a low within within the industry, you know, in terms of performance of most agencies. I think you know, most sectors, if we can sort of, you know, uh draw a correlation to results, would have would have faced the most difficult circumstances in December 2024. I think you know that that was probably the low point for a lot of agencies. And there are exceptions, different sectors performed performed differently, but generally across the industry, that was a real low point that to that December 2024. So we've you know things have things have ticked up slowly since then. And because because things have ticked up, M ⁇ A started to tick up as well. And we'll we'll talk a little bit more about that.

SPEAKER_00 1:51

Yeah. And when you talk about that that low point and then the uptick, what do you think, in your opinion, was was driving those two shifts?

SPEAKER_01 2:05

Yeah, I think look, I think it was the the economy in Australia and and and globally to some degree as well. I think if you if you look at the the downturn in numbers in Europe, including the UK, you could see a correlation there with our numbers. I think it was just uh, you know, it was it was it was coming off a of a period where where you know things things were things were pretty tough in the economy and confidence levels were were quite low, which was which was leading to to a slowdown in in in recruitment, firm recruitment, and and in contracting as well.

SPEAKER_00 2:45

Yeah, yeah. And I think it's probably fair to say that a lot of people entered this year quite cautiously.

SPEAKER_01 2:54

Yeah.

SPEAKER_00 2:54

And you know, January is always uh a slower month in Australia, but I think from certainly from what I've heard with a lot of our members is it took people by pleasant surprise. And we did seem to kick off 2026 quite positively. Do you do you agree that that's kind of the sentiment out there?

SPEAKER_01 3:14

Yeah, generally across most sectors that that that was the case. It was you know, it was a it was a good start to the to the year, and results, you know, see since then have been have been relatively good as well. So uh, you know, touch wood, we're we've you know, we've we've we've entered a a period of turnaround, but obviously we've got the the war brewing in the Middle East, you know, and we haven't seen that flow into results yet. But you know, I suppose if if if if that that war brings additional inflation uh or or an up you know an uptick in inflation, which which you know most economists are predicting, you know, that'll lead to obviously higher interest rates over over the next the next 12 months. So we we haven't seen that tick in to the to the results um presently, but um, but I think we would be naive to not be cautious.

Deal Flow Softeners And Niche Activity

SPEAKER_00 4:16

Yeah, yeah. So given that outlook, and I guess I'm guessing that you know perhaps the the if you laid out a a graph or a visual around people's performance, businesses' performance over the last two years, it's probably looking a little bit spiky and a little bit patchy. How does that translate to what's happening in MA, the appetite in terms of selling and and and buying, but also values?

SPEAKER_01 4:52

Yeah, it's look, it's it's been probably you've you've hit the nail on the head, it's probably been the biggest issue over the last few years. Yeah. There hasn't been a huge amount of deals done over over the last 24 months. And the deals that have been done, and I'm sure that the listeners will will know of, you know, there's a couple of reasonable size deals, you know, WorkPack was a was a good example. You know, that was a restructuring deal. So it was it was it was not not running a sales process for uh you know for a business that uh that was high performing. It was more restructuring a business that had that needed additional funding. And and you know, to some degree it it run into a few problems. And then you know, another deal that was done over the last 24 months, which was the the choice one Edmund deal, which was a healthcare business that was sold by people in the the listed Australian company. Yeah, again, it's re it was a restructuring deal. So it was sold to HCA, and it was the reasons for that was uh you know a change in strategy. And again, not not running a formal process but but more of a more of a restructure. So, you know, we we we haven't seen the type of deals that we saw back in 2022 and and and 23 over the over the last few years. It's it's it's it's been it's been quite slow. But performance has picked up over the last 12 months, and that has led to more transactions in play. I wouldn't say that there's been many completed at this point, but I'm aware of a number of transactions in play, which which I'm in I'm involved in and what I've heard in the market as well.

SPEAKER_00 6:51

And is that happening in particular sectors or is like what what does it look like closer to?

SPEAKER_01 6:58

Yeah, it it is. I I I I think you know, if we can if we can look at the the deals that are that are currently being negotiated, they're all in quite niche sectors. There's I'm not you know, I'm not seeing the sale of of generalist agencies. They're these are all uh very specific uh sectors and um high performance in in terms of growth and financials and and you know all the all the other attributes that you'd expect to see with a business that's uh that's going to be a business in demand. So so it's you know these are businesses that all all have performed very well and and have prepared themselves well for exit.

Buyer Checklist

SPEAKER_00 7:54

Yeah. And when you talk about businesses in demand, is it is it still, I mean, we've we've talked previously in our conversations about you know that that good hygiene around, you know, sort of you getting your house in order and you know, your contract to book and your processes and compliance, etc. But there's a big shift going on, and there's a shift around, you know, obviously investment in tech and automation, there's a shift in terms of maybe you know, leaning out teams. There's also a burden around, you know, the the sheer cost of running a business, particularly here in Australia. Does that demand and what buyers are looking for, is that changing, or is it always still those sort of key attributes of what holds a you know a business in high regard in terms of a buyer?

SPEAKER_01 8:45

I think it's I think it's still the the the key attributes. I mean, those those factors you know are big pluses for the business if it's if it has, you know, if it if it is currently using the you know the the most advanced technology with the the the the industry has to offer. Obviously that's a big plus. But but it you know it still comes down to fundamentals and and you know, number one would be you know would be the sector. Number two would be would it you know would be growth, proven growth, both historically and and forecast growth. And then, you know, I I I and we've we've previously spoken about you know the importance of that second tier of management. You know, you know, is this is this a business that is founder dependent, or has the founder transitioned that that leadership down to to a second tier, and the business is currently operating with minimal impact from the original founder or founders? You know, that that that counts for a lot. And and probably the other issue that we come across all the time is client concentration. You know, is there is there one or two clients that are that are that are that that that dominate the client base of the uh of the the uh the business? And when we say you know, dominate it, it's really in that you know that anything sort of over 15% of your gross profit to one client is is I'd call that the amber zone. And anything over 20%, you know, that's red zone. So so you know, you you have to make sure that you diversify your client base as well.

SPEAKER_00 10:29

Yeah, okay. And I know we've talked about panels and PSAs before, and and you know, the there are a lot of businesses that have a high concentration of government agencies and departments who are, you know, it's no secret that there's there's a lot of pressure on margins there. How is that viewed from a buyer perspective?

SPEAKER_01 10:52

Yeah, it's okay, you know, as as we know, you know, the the those if you're going to play in the in the panel space and and the MSP space, it's a volume play. And the obviously with with with with smaller margins, the you know, the the only way to do well is to is to have significant volumes. If you've got significant volumes, you've got to be running uh an operation that is you know is that industry best standards. So you it is possible, but but it's there's very few players that have the capability of doing it really well. Uh it can be done, but but you know, when I look at the industry and I think of who the you know the big MSP operators are, it's a you know, it's a handful of companies. And you know, a lot of businesses will claim that they've you know they've got a they've got a VMS and and they're you know they're running a uh an MSP operation, but when you dig deeper, it's one or two clients. The the you know the the operators that are operating with multiple MSP clients is very rare. But if you can do it, yes, there's a lot of demand for the for for those businesses.

Forecast Growth Gets Stress Tested

SPEAKER_00 12:18

Yeah. Okay. And and you spoke earlier, you mentioned something about deals uh not necessarily in completion, but maybe maybe in progress and that activity that's happening right now. Is there anything in particular that slows that down or is slowing things down right now, or is it just more caution?

SPEAKER_01 12:40

Yeah, I think it's look, I think it is caution, and I think I think it's the the probably the the number one issue at the moment in terms of of buyers being cautious is is looking at forecast growth. Because you you know the the only way you can demand high valuations, you know, effectively a higher multiple, is if you can prove that you've had both historical and forecast growth. So so the the forecast growth will be scrutinized. So it's not enough to put together a forecast with 10 or 15% growth slapped on to every number. And the buyer will want to understand exactly where that growth is coming from. Normally, when we put together an information memorandum, what we're doing is we're producing a gross profit or an EBITDA bridge that shows what the current EBITDA is and what the forecast EBITDA is and where that growth's coming from. So is it is it is it new geographies? Is it additional team members? Is it looking at new subsectors within the sector they they they currently operate in? But it it has to be it has to be proven. You can't you can't say, oh, we're going to improve our margin by 1% next year and not have any real explanation as to as to how that's going to be achieved. That that the buyer will see through that very quickly. So what we're seeing is we're seeing buyers spending a lot more time understanding the forecast, understanding where the growth is coming from, and not just in the next 12 months, but ongoing, looking at the next three years. And you you have to be able to explain to a buyer where those where those opportunities are, where those future opportunities for the business are.

SPEAKER_00 14:49

Yeah. Yeah. And then what about the business that maybe is not so focused on driving growth through expansion, but maybe driving profitability through, you know, leveraging tech automation, AI, you know, leaning out teams, whatever, you know, improving processing efficiencies. What's the appetite there? What does that look like?

SPEAKER_01 15:18

Yeah, this this is a this is a bit trickier. And uh you know, we we we often see this in sale and purchase agreements, this exact point. It's not it's not looked at over overly favorable, uh to be honest. It's it's because what it because that's effectively a once-off savings. And and and and most most of the the larger agencies will have their own plan for if in terms of a buyer, if a buyer's coming in and they're a larger agency, they will have their own plan for automation and and improving tech, the the tech stack within the business. If you've improved that, that, and that has led to an uptick in in the in the profitability of the business, that's fantastic. But it's uh it's not going to be a long-term thing. It's not. And it's and it's big because yeah, really we want to see an improvement in in the gross profit of the business. You know, that that that that's what we want to, we want to, we want to want to see that gross profit is in in as has grown historically and is is forecast to grow. And how how is that how is that growth going to be achieved?

Specialization That Wins Strategic Buyers

SPEAKER_00 16:40

Yeah, yeah. Okay. I want to talk to you about the idea of having, or is there a buyer for everyone? But I first of all want to talk about specialization, because specialization to me is like the it's the future of, you know, and where people should be focusing. I'm very passionate about it. But from a buyer lens, is that is that high demand? Is that something, you know, obviously you've got to achieve growth, but you may have, you know, one specialization. Have you peaked at, you know, in terms of your concentration of clients or geographies, whatever it might be? But then you see firms randomly tack on, we've had this conversation, tack on a a different discipline or or market sector that they're gonna. So I really like to understand how buyers perceive that behavior, yeah. Whether they lean in favor of you know, one's one option or another.

SPEAKER_01 17:44

Yeah, it's uh I can't stress enough how this does impact a sale process. The specialization, you know, you to be attractive to to a buyer, you you have to be, you know, I use this term a little bit loosely, but you you'll sort of get the message. You you have to be famous in a particular area, in a particular subsector of the market. What are you known for in Australia or in the regions you operate? What are you known for? And if you're not really known for anything, uh i.e. you're a a generalist that that does whatever's, you know, whatever comes your way, it's going to be a difficult sale process. And there you're going to it's not that the business is not saleable, and we'll we'll talk about we'll talk about that in a second. It's just that the the the value to a buyer, specifically a strategic buyer, is not going to be there. Um and and if you're a if you're a specialist in a in an in a particular segment of the market that you are known for and have have have proven yourself, and and you've you've proven that there are growth opportunities, and you've been able to adapt to the market as the market throws you know different uh different um you know challenges to you, and you've been able to react to those challenges in a positive way, that that shows the that you understand that segment of the market and you'll you know you're you're it's it's the the the leadership team has has a good understanding of of where the opportunities lie, even when tough times creep in. And you know, good examples of that would be say in the in the healthcare space when we've seen you know we've seen challenges with um with the Evo system in New South Wales and and and you know margins being being you know sliced and diced. And and you know, how how have how has a business adapted to that? How have they how have they uh resolved those challenges? So so I think I think you know, if you it was was it that they you know that they found a way around it, they looked at other opportunities, or was it that they panicked and said, oh my goodness, we've got to get out of healthcare. Yeah, we've got to go into you know building a construction. You know, uh, you know, it it it it just that sort of and I'm not saying that you know that's probably uh a bit of a silly example, but but but it it I think it I think what it shows is that that you know if you're if you understand a market, you can see where the opportunities are and adapt.

2026 Valuations Timing And Earnouts

SPEAKER_00 20:46

Yeah, yeah, absolutely. So you mentioned about values earlier. Um I'd be really interested to know, you know, what what they look like now in 2026.

SPEAKER_01 21:00

Yeah, it's it's a question that that obviously, you know, whilst I'm starting a process, I get asked a lot. And the multiples that were being achieved in 2022 and and 23 and right then running running into the early part of 24 were were you know extremely strong. And uh, you know, to to be you know to be selling you know perm, you know, predominantly perm agencies for seven times was you know was was unheard of in Australia. Now have the have multiples come off a little bit since then? Yes. So and the you know, there's a few reasons as to why. The firstly, let let's examine where you know how much they've come off. So a business that we'd we'd we'd sell for seven times, we're probably looking at 6.5 or 6.5. three now. So you know there there has been a fall off. But but in in in in saying that, yeah, the multiples are still strong for the right for the right buyers. The reasons that they've come off are there's this there's a couple of reasons. Valuation, the way valuation methodologies work is they they take into account the cost of money. And when you when when you're looking at at a business like that that you know that was sold in 2022 to 2023, we had historically low interest rates. And that the cost of money was relatively was was significantly lower than what it what it is today. So that does creep into valuation models. So that that has a direct impact on valuations. The second factor is that that we saw in 2000 and 2223 we saw fantastic growth numbers and and the the growth that we were seeing was was was you know was was effectively translated into into higher multiples. The growth that we're seeing today if we if we look at the the FY25 year compared with the FY24 year and the FY26 year which obviously we're we we haven't completed yet but look at the FY26 forecast comparing that to the FY25 numbers we're seeing growth but but more modest growth not not at the the sort of the hockey stick growth that we saw in 2022 23 so so that that is that has had an impact on on multiples as well so I I you know I think you know can't coming the coming into 2022 23 buyers were willing to completely discount the FY 2020 numbers and the FY 2021 numbers they just you know basically took them out of the out of the the the historicals now what we're seeing is we're we're not we don't we don't have that luxury so so when we're looking at the 2022 2023 2024 25 and 26 they are still looking at the 20 and and 24 numbers and and and saying okay well they did fall off a bit from 2023 and that's going to be that's going to impact the multiple to some degree so so yeah so multiples have fallen back a little bit but for the right strategic buyer they're still very healthy. Yeah so if you had to sum up the valuation environment in in one line let's say how what would you say uh it's opportunities um are great for high quality businesses and finding the right strategic buyer you know that that that's if you've got if you've got a fantastic business then it's the advisor's role it's my role to find the right strategic buyer out there and if you can if you can if you can put the a fantastic business with the right strategic buyer there's a there's a there's a terrific opportunity for for for both both parties the buyer and the seller yeah what about timing?

SPEAKER_00 25:45

Because obviously if you have got you know historical you know performance that is as we said earlier you know it's patchy or that there's been some kind of fall off and and you might be gaining ground is it better to hold and wait and or I mean I know it's not always the case that people have different circumstances but how much does timing kind of play into the end result?

SPEAKER_01 26:13

Yeah it does and I and I think you know I think the the what we've seen over the last few years is is obviously a a slowdown in in the amount of of transactions in Australia what is important for for business owners to understand is that that's it's not a reflection of the demand for good businesses. So so there was still a lot of buyers out there during those the that that period that that two year period and because there's still a lot of buyers there were there were a lot of buyers and there wasn't a lot of opportunities in the market there is there is a bit of a backlog in in opportunities. So if you're first if you're first to market with your business and when when I say first to market you know I'm talking about now coming into play now there could be a better opportunity to sell your business today than possibly in 12 months time because there are there are there are only a certain amount of buyers out there looking looking at the Australian market. Now they've been I've been talking to those buyers over the last few years but we haven't had the the the right businesses come to market to suit those buyers and and the and the reason for that was performance and and now that performance has picked up the you know we're working on we're working on three transactions at the moment and all of those transactions when I say we're working on them we have offer letters on all of them those three transactions are all being sold on the FY26 forecast numbers. So so we're we're we're we're using those numbers to you know to demonstrate that there's sustained growth over a period of two years. Now that's we're we're doing that because they're they're the first in each of their sectors to come to market and and there are there are great opportunities because of the the buyers that I'm aware of in the market. If you do leave things a little bit longer yes there will always you know there's always going to be buyers in the market but but maybe that opportunity may pass you by because a strategic buyer may find another opportunity in the Australian marketplace. So to answer your question now is actually a good time. Yeah okay interesting well that leads perfectly to this question that I've always wanted to ask you which is there a buyer for everyone yeah well I would say yes but maybe not at the uh at the uh you know the price and the you know the structuring of a deal that that that uh that a seller you know is is looking for so you know what do I mean by that I mean price is obvious but but you know structuring a seller may be looking to divest 100% of the business and that that may not be possible in all in all scenarios which we'll we'll talk a little bit further about. So I think look I think there are there you know there there probably is a buyer for most agencies. And actually let me preface that most agencies with profitabilion dollars that's that's what I would say if you've got if you've got profitabilion dollars you there may not be a buy if for example if you're a a one man or a two band or a three a a three a three you know three band business where you've only got you know two or three people working it it may be challenging. There you know there there has to be a team there that that that is a real business. Otherwise you know they're just simply buying consultants. Yeah yeah good point interesting heard it here first folks that's uh a very succinct way of putting it the uh over a million so I guess what you're saying is that it's it's not just a straightforward yes there is or no there isn't it's about attractiveness and readiness and fit but also the structure of the the sale yeah yeah that's right so the just so the the structure of the sale you know for a for a a business that is heavily dependent on the founder a buyer may may be reluctant to release that founder from the business and and effectively you know buy 100% of the business until it's proven that that founder has success has successfully transitioned the um the the business across to to a second tier of management and the uh you know a a a buyer and you you know any any business owner can understand this you you if you're buying something and you're being told that it's going to run itself you know you want you you want it proven now the the more capable a business is of running itself the less is the period of the earnout so so you know we we've done you know a good example would be the the sale of the of the finite business very large established business with a very strong second tier of management now the the earnout on that business was nine months now that's very rare but but it is it is possible where it can be proven that that the the management team that exists within the business is is capable of taking that business over. And and I think sometimes there's this misconception out there that when a buyer buys a business they're going to parachute in this new management team and they're gonna make all those changes that is that is extremely rare that that that that would happen. The they're buying what they want to buy is a going concern they want to buy a business that that will continue to operate in the the manner that it that it that it has operated in previous years. And and they want it to operate without the founder's input and they you know generally there's a their there you know the earnout period is generally a couple of years and that's perceived to be enough time for the for the for the founder to transition. But you know some earnouts can be up to five years if there's if there's concern that that maybe the business can't kind of run by itself without the founder.

SPEAKER_00 33:25

So that that point you raised Sarah about that that sort of leadership team in the finite case being so strong I imagine is a challenge in in our industry if you if you want to generalize is that when it is less less than perfect let's say is it a stumbling block that fails the sale or is it like you've just said something that maybe draws out that burnout and gives the buyer more leverage in terms of what that sales structure looks like it's I think it's the it is during the process of due diligence um the the you know you you're the buyer will undertake significant due diligence themselves.

SPEAKER_01 34:29

There's a you know there's the financial legal and tax stuff which is which is you know done by external parties. But the operational due diligence is performed by generally by the buyer and during that process of of operational D D they will examine the management team that is in that second tier and they will you know they will look at things like okay well I they want to understand the CDs of those people they want to understand the tenure they want to understand the performance of their of the of those uh of the teams that they're currently running and and ultimately as part of the the sale process they'll want to interview them. Now the the the that interview process is generally done in between the signing of the agreement and completion but but it it's it's referred to as a condition precedent within the within the sale and purchase agreement. Now I've never seen a a sale not go ahead but the buyer reserves the rye should they be uh not convinced of the of the management team to to actually pull out of the deal and um it would be extremely rare but but but the the there is you know what what founders do have to understand it's not going to be enough to just say oh look uh you know Charlie's a great you know he's a he's a great deputy to me and you know he'll be fine taking over the business once I'm gone. It's there will be due diligence to understand who Charlie is and and you know where does he have the capability of of running the business?

SPEAKER_00 36:18

Yeah yeah okay that's really interesting so just to revisit that I guess that attractiveness of of you know that that classically saleable business that is in high demand by buyers can you can you describe that can you give us a a clear picture?

SPEAKER_01 36:37

I know you've talked about the the due diligence concept yeah look at I I suppose if you if you think about it there's there's sort of a sometimes you know it's either in not not so much in the recruitment and and staffing space but but in other other industries you know you hear of these businesses that are that are just you know they everybody wants them. And and you know you you went we went through that you know in the in the in the US with you know AI you know related businesses going back uh you know probably 18 months ago and you know the valuations were just you know astronomical and for really businesses that were generating a huge amount of of of profit profit at the time. So those business those type of businesses within the recruitment industry are rare. You know you you you might you might come across them when a sector is red hot and it's just starting you know like like something like you know healthcare went through that you know a couple you know probably you know three or four years ago you know there were it was red hot for you know for for for six you know probably six months to 12 months everybody wanted a you know healthcare business actually probably even goes back prior to you know prior to sort of three years ago and you know we saw it in the early 2000s with technology staffing businesses as well and it you know the if you if you had a technology staffing business you know leading into the dot-com boom let's you know let it let's you know say before the boom not not not uh after after it collapsed but it that would have been a red hot sector and and and and it's it's I think those those type of sectors are rare and we you know we those type of scenarios are rare and we don't see them very often so you know I I think what's probably more likely in in in in the industry is where you you've got you're in an in a specific niche sector and it comes back to what we were talking about before and there is a there's a strategic buyer that wants to be in your in in exactly in your niche sector in your geography i Australia and and you know if you can find that buyer in Japan or in europe or um the states then that is the perfect strategic buyer and you will you will get the the the highest multiple possible because they want you as the missing piece in their puzzle and and and and and that's where you're going to get you're going to get great a great valuation and that that's the job of the advisor that's that that the advisor has to find that strategic that strategic buyer so that's you know that that's that's where you've got that that you know that niche niche sector. Say you've got a niche sector but there's a founder that you know that it that it that is still significant within within that business. That's where there still might be a buyer but the earnout might be longer. So it comes down to structuring of the deal. So we yeah we still might be able to get the deal away but it's not going to be quite as attractive as as a business that has a strong second tier of of management and and can yeah pretty much run itself when the founder leaves. Right okay and when you spoke then about where the buyers are where are the buyers right now yeah it's it's still uh the the the the main regions of Japan and Europe I mean it it's it's I wouldn't rule out the US but it's only for specific niche areas so I would say executive search there's still a lot of buyers in the US healthcare there's still a lot of buyers in the US but but you know when it comes to say finance and banking you know there it's probably more Japan and Europe. It just depends on the sector. Building a construction probably more Europe unless say Japan so so it's it's it's yeah it just depends on the sector. Yeah yeah okay interesting before we wrap up I just I just wanted to sort of revisit that that notion or that idea we talked about you know the buyer for everyone if if owners asked you is there a buyer for everyone what would what's your response what would you close with probably not um there's probably not a buyer for everybody if you're if the business is not at a at a level where you'd call it a business. So and it comes down to you know if you if you're a if you're a one man band or a two man band you know that that it's it's it's hard to you know it's hard to say that's a real business. The if we're talking about established teams and you know let's let's let's call it you know and I sort of you know I put the stake in the ground at a million dollars for profitability. Yeah yeah there there are there there there is a buyer there's probably a buyer for for every business. Now preface that with the you know the owner may not be comfortable with what the value what the um what the buyer's offering in terms of the the valuation but it is still it it still should be saleable at at those levels. Where we get to a point where you know we're talking higher multiples strong demand from offshore buyers you know we really need to be in that that eBIT range of three to three and a half million that's that that's where the the that's where you're going to get you start getting stronger multiples provided that we tip the boxes on the other attributes that we were talking about.

SPEAKER_00 43:10

Of course so that's the sweet spot. So if there was one misconception Paul that you would like recruitment business owners to let go of let's say what would it be?

SPEAKER_01 43:23

Yeah now this is going to be a controversial one um uh don't think you need a contracting book or a temp book to to to to sell your business oh yeah it's I look I know that if we go back 10 years ago or you know probably as soon as five years ago you know it's it it was you know the sweet spot was yeah have at your gross profit level 50% perm 50% contracting that's you know it's it's it's nice and and if you've got a and if you've got a you know if you can get your contracting book Hi, yeah, great. Um, I think this is this is this is this may be true for particular geographies. So if we're if we're talking about the UK, for example, yes, 50-50 is probably a good, you know, to have a good mix of contracting and perm, yeah, probably probably a good thing. If we're talking Japan, where agencies are structured differently, temp, contingent placements or perm and executive search is all separate in Japan. Very similar to the US. And the the they don't tend to mix permanent contracting in Japan and the US. And look, the uh they've got that luxury because they are they are significantly larger markets to our market. And uh and we don't have that luxury here.

SPEAKER_00 44:59

We So when you say they don't mix, Paul, do you mean that they're run as separate businesses?

SPEAKER_01 45:06

They run as separate businesses.

SPEAKER_00 45:08

Okay. Ah, interesting.

SPEAKER_01 45:10

So so it's you know, it's in and I often talk about the you know, the story of of of of four quarters when we did that deal in 2024. It it when we were first pitching that business to the Japanese buyer called MS Japan, they they we would we were presenting the uh the the the revenue numbers and and we got to the to the temp book and you know we said, okay, well, this is the gross profit generated by the by the uh the the the contracting book. And and you know, there was a lot of discussion in Japanese, and and then the translator said, Oh, they don't understand what that is. Can you explain what it is? And we explained it, and they said, Well, we don't want that. And they said, Can you keep that? And and we said, no, no, it's it's it's it's too mash in the business. And I said, Look, it pays a nice chunk of overheads every month, and it's very profitable, and and it represented probably about 25% of the business at a gross profit level. And and look, they they in the end they they bought it as part of the deal, but but they didn't do, you know, the the contracting wasn't something that they did. And and they they were purely uh a perm a perm placement business in Japan. Most of it was contingent, and you know, they did a little bit of retained, but but but it was it was uh you know, contracting book was just quite foreign to them. And and and it it's yeah, we we were shocked that that that they were, you know, that they would they would say to us, oh you know, we don't want that. Uh so I think it's a you know it's a good example of where of where you know a business. Yeah, just don't please don't think that you know you're just because you don't have a contracting book, your business is not saleable. That that's just simply not the case. It's up to the advisor to find the right market and and and and effectively the right strategic buy.

SPEAKER_00 47:19

Well, I've learned something new today then, because I always thought that you know the prime business was that kind of 50-50 or 40-60 split.

SPEAKER_01 47:27

And that's that's what we've been trained. I mean, we've been you know, we're we've we've always been told, you know, you need a contracting book to get you through the tough times or to you know to to you know to to have that safety net there. And and look, I I think for our market, that's correct. That is uh 100% correct. But but but when you go to sell the business, what you know what what's what's worked in our market isn't necessarily what a what a what a what a buyer perceives as the perfect fit for their for the for their business. So because of diff they're in a different geography, they operate in a slightly different way. So so it's yeah, it's a it's it's I'm I'm not saying it's bad to have a contract, it's definitely not bad. It's it's a good thing because it it does get you through the tough times. But don't don't don't think that that it's that's a deterrent to to a potential purchaser. It's it it may not be. Now it might be in the UK, if you if you because they might look at it as a as as as in the same way we look at it here, but in in Japan or the US, you know, it's perceived a very different way.

Build Leaders Share Upside Close

SPEAKER_00 48:44

Yeah, yeah, very true. So what final gem advice, piece of advice would you would you like to leave our listeners today with before we finish?

SPEAKER_01 48:57

Yeah, I think it's I think I think it's it's in invest in that that second tier of management. You know, invest in your people. I know and I know that's you know that's a lot easier said than done. Uh it's it is so hard to find great people, and we we all we all know that. It doesn't matter what industry you're in. Um, but you know, if you if you can find a good leadership team, just make sure that you take care of them. You know, there and that that you know that may mean you know providing them some form of equity to keep to you know to keep them in the business, to retain them. And we, you know, we've probably implemented more employee share plans over the last you know five years than we've implemented for the last you know 20, you know, prior to that. So so it's it's you know, I think, I think, you know, just just in in invest in that and and yeah, like it's it is just so critically important to have a good to have a good management team. It adds so much value to the business.

SPEAKER_00 50:10

And what about countering or or mitigating the risk tied up in that? Do you do you share with that management team early that the long-term plan is to sell, that you know, what the exit strategy looks like and their role in it? How important is that part?

SPEAKER_01 50:26

I think you I think you need to. I think you need to be quite transparent. And the you know, the employee share plans uh that we've put together, we've always had discussions with the management team saying, okay, well, if we sell the business, if the business is sold in in three years or four years' time, and we get to the numbers that we're you know, that we're shooting for, you walk away with you know, with half a million dollars or with a million dollars, or whatever, whatever the number is. And and I think you know, you need to have that discussion. Otherwise, it's sort of the the employee share plan is sort of a bit meaningless. I you know, there has to be there has to be a strategy there to eventually sell a business and and and for them to share in that that you know the the the the proceeds of that sale. And and with you know the some of the sales we've done in the past, you know, the the the management team have done very, very well out of out of the the the the the the the sale of the business you know to the to the point where sometimes you know it's it's it's effectively life-changing money.

SPEAKER_00 51:36

Wow. Fantastic. Paul, thank you. That was really interesting and and great to be back recording these these sessions again for deal makers. I know we've got a few more lined up for the for the few months, which will be great, diving into some topics. So if anyone listening wants us to tackle anything in particular or would like to ask a question for me to put to Paul, please do get in touch with us, and I'd be more than happy to do so. But we will see you next time. Paul, thank you once again and have a great day.

SPEAKER_01 52:08

Thanks so much, Leslie.