M & A activity in 2012
Richard Hayward
February 15th, 2012
Predicting the level of merger and acquisition activity in the Recruitment industry in Australia in any given year is a challenging assignment. There are so many micro factors which influence the actions of different companies that making generalised predictions can appear quite “off base” as time unfolds. However, we will have a look at the current market and still go ahead and make a few forecasts.
The economy
Quite a few economic commentators have been frustrated at how our local media ignores much of the good news about the economy and gives great prominence to the gloomier predictions. A lot of the coverage also does not relate the context of domestic economic performance relative to much of the rest of the world. In a competitive global environment relative performance and regional location is very important.
Chris Richardson, director of Deloitte Access Economics was quoted in the Sydney Morning Herald, 12 January as saying that; “When you have the papers and nightly news full of reports that Europe is in trouble, the banks are in danger of blowing up and all the dire outcomes that would produce, you get people worrying about their own situation, even though the economic settings are very different in Australia than those of overseas”.
The perceptions created almost certainly have an impact on consumer spending and possibly on some business investment decisions.
While Europe appears to be struggling through its financial and economic issues, growth in our part of the world, while lower, is still quite high. This is led by China which is forecast to grow at 8.4 % this year (according to the World Bank). Many economist have also pointed out that Australia’s position allows for further rate cuts by the Reserve Bank and with a federal budget that is roughly in balance, there is room for stimulus activity if needed.
The Market
The need for gloom in our circumstances seems to be overblown. The recruitment industry has performed well in times that are much worse than what is anticipated this year. This is not to downplay the experience of some recruitment companies that are experiencing declining placements. Unemployment appears to be very slowly increasing (from a low base) and there are still shortages of the right type of skills in some areas. Possibly employers are also more cautious in the post GFC days and the Recruitment industry sits at the frontline when employment planning changes.
We know anecdotally that some recruiters are finding it harder than usual to forecast their results for the next year based on conflicting signals from their clients. This uncertainty, for a range of reasons, is most likely going to continue to varying degrees and so for many it is now time to just get on with business. Twelve months is a reasonably long time in the recruitment industry and sometimes we tend to focus on what is happening this month (or even week). We can forget to look back over the course of a year on how we did actually perform considering the fluctuations experienced. It was certainly not all bad!
Buying and Selling in 2012
Given the realistic forecasts and circumstances for local markets there will be plenty of opportunities for marrying the interests of potential sellers with companies looking for acquisitions. Generally speaking there has not been too much movement in the multiplier calculations for the industry for several years. The most significant change we have experienced ( particularly in the post GFC environment) is the greater rigour and diligence exercised by buying companies in assessing the merits of an acquisition. Naturally, buyers want to reduce as much as possible the extent of risk they face and will gravitate toward opportunities that appear to provide the greatest level of sustainability into the future. Nothing is going to change in that regard in 2012.
Owners considering selling will still find buyers that that will pay an appropriate and fair market price if they meet the sustainability criteria. There is no change to that opportunity in 2012.
Listed Australian companies will still seek to supplement growth through share-accretive acquisitions that meet their strategic directions. No change is anticipated there.
One of the safest predictions to make is to say that the coming year will be pretty much the same as the year just gone. I will boldly go with that prediction for 2012.
Richard Hayward is a Principal of HHMC Australia, a specialist Merger & Acquisition consultancy focusing on the Recruitment Industry. Richard has an extensive background at senior levels in the Recruitment sector having worked with international, national and smaller local companies for over a decade before joining HHMC. His clients, as either buyers or sellers include companies ranging from blue collar industrial, ICT, banking & finance, accounting, business support, and operations recruiting businesses.
This article was posted on Wednesday, February 15th, 2012 at 9:00 am.