The Blog for Staffing Companies | R.A. Cohen Consulting

Selling Your Business, Staffing Industry M & A Activities, Staffing Tech, ValuationApril 17, 2025

Cybersecurity in Staffing M&A Part 3 – Post-Acquisition Cybersecurity

Post-acquisition cybersecurity integration is critical to preserving deal value in staffing M&A.

In Part 1 of this series, we looked at the cybersecurity risks that often go unnoticed before a staffing M&A deal begins.

In Part 2, we explored how hidden vulnerabilities uncovered during due diligence can derail a transaction or lead to painful surprises post-close.

Now in Part 3, we turn our focus to what happens after the deal is signed. Because once the ink dries, the real work begins, and for many buyers, post-acquisition cybersecurity integration is where the biggest risks and blind spots still live.

After the deal is closed, the hard work doesn’t stop. In fact, post-acquisition cybersecurity integration can be one of the most challenging, and critical parts of an M&A transaction. Ensuring that security measures are harmonized, and operational risks are mitigated during the integration phase can make or break the success of a merger.

I sat down again with cybersecurity expert Mike Glover and Charter’s Krisann McDonnell to talk about the people, systems, and processes that must align to keep a deal from turning into a security mess.

Brian Kennedy: Mike, Krisann, now that a deal is closed, what are the key cybersecurity integration challenges companies face?

Mike Glover: “The first major challenge is aligning IT systems. Even if both companies had solid security practices before the deal, merging different systems can expose vulnerabilities. Whether it’s integrating payroll systems, HR software, or cloud-based services, you’re looking at a lot of moving parts. If the integration isn’t done carefully, you can inadvertently create new gaps in security.”

Brian: So, the merging of systems itself can create new risks?

Mike: “Absolutely. Even if the intention is to improve overall security, the process of integration can sometimes expose weaknesses. For example, if one company is using an outdated system that isn’t compatible with the buyer’s newer systems, that could leave a backdoor open for cyberattacks. The IT teams need to carefully vet all systems before integration to ensure that the security posture remains strong.”

Krisann McDonnell: “Adding to that, another challenge is ensuring a unified security culture. Cybersecurity isn’t just about technology; it’s about people. You have different teams, with different policies and practices. For the integration to be successful, you need to align employees on the importance of cybersecurity, the protocols to follow, and the tools to use. If there’s inconsistency, it can lead to weak points that attackers might exploit.”

Brian: That’s a good point, Krisann. How do you effectively manage this cultural shift and ensure that employees from both companies are on the same page when it comes to cybersecurity?

Krisann: “It’s all about education and communication. The first thing you need to do is communicate the importance of cybersecurity to all employees early on. Staff training should be one of the first initiatives after the acquisition. Everyone needs to be on the same page in terms of understanding the firm’s new security protocols and how to recognize potential threats, like phishing attempts or social engineering tactics.”

Mike: “One of the most critical things during this phase is to ensure employee access control is locked down properly. The merger is the time when access rights should be reassessed across the entire organization. You need to identify who has access to sensitive data and systems and whether that access is still justified. If former employees or contractors still have access, it could be a serious security risk.”

Brian: That’s a great point. Now, what about monitoring? After the integration, how can staffing firms ensure that their security measures are holding up?

Mike: “Post-integration, you need a strong monitoring system in place to ensure that security risks don’t slip through the cracks. It’s critical to have continuous monitoring tools that alert your IT team to any suspicious activity. This way, you can act quickly before a potential attack becomes a full-scale breach.”

Krisann: “Continuous monitoring is non-negotiable. During the integration process, there’s a high level of risk, as cybercriminals often see mergers and acquisitions as a prime time to strike. Attackers target the weak points during the chaos of an integration. Monitoring tools help identify these risks in real-time, so that you can act fast.”

Brian: What happens if a cybersecurity incident occurs after the deal closes? How should the buyer respond?

Krisann: “If an incident occurs post-acquisition, it’s critical to have an incident response plan already in place. This plan should outline the roles and responsibilities of the IT team, communication protocols, and the steps to contain the breach. Having a tested, clear response plan can make all the difference in minimizing the damage from an attack.”

Mike: “Right. An incident response plan ensures that everyone knows what to do and can act quickly. But even before an incident occurs, you should be testing the security systems regularly and conducting mock incident response drills. This keeps the team sharp and ready if something does go wrong.”

Brian: So, it sounds like cybersecurity post-acquisition is not just about fixing immediate problems—it’s about being proactive to ensure a smooth transition.

Mike: “Exactly. It’s about making sure that security is integrated into every part of the new business. It’s not just the IT systems but also the people and processes. You need to assess and adjust to ensure that vulnerabilities aren’t created during the transition phase. The goal is to keep the organization secure and ensure that the buyer’s investment is protected long-term.”

Krisann: “And that’s why cybersecurity should be part of the post-merger strategy from the very beginning. It’s about setting up your systems for success and preventing a situation where you’re scrambling to fix issues after they arise. If you do this correctly, the integration can be smooth, and the organization can operate securely in its new form.”

Brian: For staffing firms looking at an M&A deal, what steps should they take to ensure a smooth cybersecurity integration post-acquisition?

Mike: “The first step is to conduct a thorough assessment before the deal closes. This means auditing all systems, reviewing access controls, and checking for vulnerabilities. Then, as the integration progresses, it’s important to keep communication open between both IT teams and the leadership teams to ensure the process remains smooth. Make cybersecurity a key part of the merger’s success.”

Krisann: “And keep educating your staff. Post-acquisition is a time of change, and staff may not be familiar with the new protocols. So, ongoing training, regular communications, and a clear incident response plan are vital. The more proactive you are, the less likely you’ll face issues down the road.”

Brian: Final thoughts on post-acquisition cybersecurity integration?

Mike: “It’s all about planning. Start with a comprehensive audit, align your teams, and ensure you have strong monitoring in place. Don’t let security be an afterthought after the acquisition. Make it a key part of the integration strategy from day one.”

Krisann: “Post-acquisition cybersecurity isn’t a one-time fix—it’s an ongoing process. By taking the right steps early on, you can prevent problems later and make sure the newly merged entity is secure, compliant, and ready to thrive.”

As mentioned, post-acquisition cybersecurity integration is critical to preserving deal value in staffing M&A.

Take Action Now.

If you’re considering selling your staffing firm, don’t let cybersecurity be the reason you lose value or delay your deal. The risks you overlook today could be the very reason your deal falls apart tomorrow.

As someone who specializes in selling staffing companies, I can tell you that the firms that address cybersecurity issues upfront are the ones more likely to get top dollar. It’s a marketable characteristic of your enterprise. If you want to make your business as attractive as possible to buyers, it’s crucial to address any cybersecurity vulnerabilities now.

Charter can make that process easier. They offer confidential cybersecurity assessments that help firms identify weaknesses, improve their digital hygiene, and ensure they’re ready for a successful transaction.

No cost. No pressure. Just real insights.

Schedule a complimentary, confidential consultation with Charter today: [kmcdonnell@charter.ca]

You can also ask us your M&A questions: brian@racohenconsulting.com and be sure to check our Resources Library out here: https://racohenconsulting.com/library

Your business value depends on it.

In the next article, we’ll look at the proactive steps staffing firms can take before entering the M&A market to strengthen their cybersecurity and protect their valuation.

Due Diligence, Growing Your Business, Selling Your Business, ValuationApril 11, 2025

In Staffing, the Exit Clock Starts the Day You Open the Doors

Too many owners treat selling like a light switch, flip it when you’re ready. But real value isn’t built at closing. It’s built in the trenches, long before the first buyer ever knocks.

The truth?
Great exits are the result of years of discipline:

Building systems that don’t rely on you.
Hiring people who can lead without you.
Landing contracts that keep renewing—even when you’re golfing.
Making decisions that increase transferable value, not just short-term profit.

It’s not about timing the market. It’s about being ready when the timing finds you. Buyers reward readiness, not effort.

And in staffing, readiness means:

Clean books.
Recurring gross profit.
Low churn.
Documented process.
Clear scale potential.

These are the currency of a strong multiple. You’re always one recession, client loss, or internal resignation away from sliding backward, and losing ground you can’t easily recover.

So if you think your exit is “someday,” start acting like it’s already on the calendar. Because it is. You just haven’t been told the date yet.

Build like you’re not selling.
Prepare like you are.
Win either way.

Thinking of selling your staffing firm someday? Then get started today.

We help staffing firm owners turn uncertainty into strategy, and strategy into strong exits.
No guesswork. No panic. Just a business that’s ready when the time comes.

We engineer the kind of exits that don’t “just happen”, they work. Let’s talk now, so you’re ready when the moment finds you.

Schedule a confidential valuation or reach out directly, no pressure, just clarity.

Selling Your Business, Staffing Tech, ValuationApril 4, 2025

Part 2 – Hidden Cybersecurity Risks in Staffing Industry Acquisitions

Cybersecurity risks are not always obvious. While buyers have become more attuned to the major risks, data breaches, ransomware attacks, and weak passwords, there are often hidden vulnerabilities lurking beneath the surface. To better understand these hidden threats and how they can impact staffing M&A, I sat down again with Mike Glover, an expert in cybersecurity for M&A, and Krisann McDonnell, a leading M&A and security expert at Charter.

Brian Kennedy: Mike, we’ve discussed the major cybersecurity risks, but what about the hidden ones that buyers should be looking for?

Mike Glover: “Hidden risks are often the ones that derail a deal when it’s too late to address them. For example, something as simple as outdated software can be a huge vulnerability. Many staffing firms still use legacy systems like applicant tracking systems (ATS) or payroll software that lack the necessary security patches and updates. These systems might have been good when they were first installed, but as they age, the vulnerabilities multiply.”

Brian: So, an old ATS or payroll system can actually be a dealbreaker?

Mike: “Absolutely. A buyer may look at a firm and see a lot of business value, but when they dive into the IT infrastructure, they often find outdated systems that aren’t equipped to handle modern cybersecurity threats. That’s a major risk. If a buyer discovers that a staffing firm’s IT system is exposed to vulnerabilities because of old software, it could be a dealbreaker. They might not want to take on the risk of having to upgrade or replace critical systems, especially if it’s a large, complex transition.”

Brian: Krisann, are there any other hidden cybersecurity risks you see often overlooked during the due diligence process?

Krisann McDonnell: “Yes, there are several. One major one is third-party vendor risk. Staffing firms work with many vendors, payroll providers, background check companies, CRM systems, and sometimes these third parties don’t have the same level of security controls. If the vendor’s systems aren’t secure, the breach could extend to your firm, even if your internal systems are top-notch.”

Brian: So a third-party vendor could be the weak link in the chain?

Krisann: “Exactly. It’s not just about what’s inside your own organization, it’s about the whole ecosystem. If a staffing firm’s third-party vendors have weak security practices, it can put the buyer at risk. A buyer needs to understand where and how sensitive data is being handled throughout the entire supply chain.”

Brian: How do you uncover third-party risks during the due diligence process?

Krisann: “You need to review contracts and policies with third-party vendors. Is there a clear cybersecurity clause in the contract? Does the vendor follow industry standards? Do they conduct their own cybersecurity audits? Buyers should ask these questions to ensure they’re not inheriting a problem.”

Brian: Another hidden risk you’ve mentioned in the past is shadow IT. Can you explain how this can impact an M&A deal?

Mike: “Shadow IT refers to the unauthorized use of technology within an organization, essentially, employees using software or devices that the IT department hasn’t approved or monitored. For example, employees might use personal cloud storage solutions to store work-related data because it’s easier or more convenient. They might not even realize the risks they’re introducing by doing this. The problem is that when an acquisition is happening, shadow IT can fly under the radar and potentially expose the firm to vulnerabilities.”

Brian: So, employees using unauthorized applications could create unseen risks that a buyer wouldn’t catch unless they do a deep dive?

Mike: “Exactly. These risks are tough to identify unless you take the time to fully assess the IT environment, including unauthorized devices and apps that employees use. If these systems are not properly secured, they can be a backdoor for hackers. And a buyer might not catch it unless they have a comprehensive audit in place.”

Brian: So, what can staffing firms do to address these hidden risks before they enter the M&A market?

Krisann: “A good place to start is by conducting a comprehensive cybersecurity audit. Look for outdated systems, shadow IT, and third-party vendor risks. Perform internal penetration testing to see where vulnerabilities exist. And don’t forget to assess any past incidents or breaches, even if they were resolved years ago. Any history of a breach should be fully disclosed to the buyer to avoid trust issues.”

Mike: “Exactly. And once you’ve identified these risks, make sure they’re properly addressed. For example, if there’s outdated software, upgrade it. If there’s shadow IT, bring those tools under control. Be transparent about past breaches and take steps to demonstrate that they’ve been mitigated. The goal is to show the buyer that you’ve taken a proactive approach to security, which can really boost buyer confidence.”

Brian: Let’s talk about the most important thing here, how hidden cybersecurity risks impact valuation.

Mike: “Hidden risks can lower the valuation of a firm drastically. If buyers find vulnerabilities during due diligence, they’ll factor that into the price. They may require a discount or request more significant holdbacks to protect themselves in case the vulnerabilities result in a breach down the road.”

Krisann: “In some cases, if the risks are high enough, the buyer might pull out of the deal entirely. I’ve seen deals where buyers started off interested but ultimately walked away once they understood the scope of hidden risks. Buyers aren’t willing to gamble with their investment. The more hidden risks there are, the less attractive the deal becomes.”

Brian: So, for staffing firms thinking about selling, what steps can they take now to uncover and fix these hidden risks?

Mike: “It’s all about being proactive. Don’t wait for the buyer to uncover issues. Start by doing your own audit and fix any issues you find. Bring in outside experts to help if necessary. Address outdated software, clean up shadow IT, and make sure your vendors are up to standard. The earlier you tackle these issues, the less risk there will be in the deal process.”

Krisann: “And one more thing, be transparent. Buyers appreciate a seller who’s honest about any past security incidents or ongoing risks. If you’re upfront about these issues and show that you’ve taken steps to mitigate them, it will build trust and go a long way in protecting your valuation.”

Brian: Great insights. Any final thoughts for staffing firms looking to enter the M&A market?

Mike: “The key takeaway is to prepare early. Cybersecurity isn’t something you can rush. It’s an ongoing effort, and firms that take a proactive, comprehensive approach will not only protect themselves but also boost their market value.”

Krisann: “Absolutely. Addressing cybersecurity early isn’t just about risk mitigation, it’s about building trust, confidence, and a stronger position in negotiations. The firms that do this right will have a distinct advantage when they’re ready to sell.”

Take Action Now.

If you’re considering selling your staffing firm, don’t let cybersecurity be the reason you lose value or delay your deal. The risks you overlook today could be the very reason your deal falls apart tomorrow.

As someone who specializes in selling staffing companies, I can tell you that the firms that address cybersecurity issues upfront are the ones more likely to get top dollar. It’s a marketable characteristic of your enterprise. If you want to make your business as attractive as possible to buyers, it’s crucial to address any cybersecurity vulnerabilities now.

Charter can make that process easier. They offer confidential cybersecurity assessments that help firms identify weaknesses, improve their digital hygiene, and ensure they’re ready for a successful transaction.

No cost. No pressure. Just real insights.

Schedule a complimentary, confidential consultation with Charter today: [kmcdonnell@charter.ca]

You can also ask us your M&A questions: brian@racohenconsulting.com and be sure to check our Resources Library out here: https://racohenconsulting.com/library

Your business value depends on it.

In the next article, we’ll look at how to successfully integrate cybersecurity after an acquisition and ensure a smooth transition.

Growing Your Business, Leadership & Delegation, Selling Your BusinessMarch 28, 2025

Working IN vs. ON Your Business: You Might Be the Problem

“In” vs.” On”? The Hard Truth for Staffing Company Owners: Maybe You’re the Problem.

As an Owner/Leader, you pour your energy into growing your business. But here’s the paradox: the very hands-on approach that built your success can become your biggest obstacle, especially when preparing for growth or an eventual sale. Buyers aren’t just looking for a profitable business; they’re looking for one that can thrive without you.

Transitioning from working “in” the business to “on” it is a critical shift that separates good Owner/Leaders from great ones. Working on the business means focusing on high-level strategy, growth opportunities, and building systems that allow the organization to thrive independently of your daily involvement. Here are 8 practical steps to make the leap and set your business up for long-term success, whether you’re scaling for growth or positioning for a sale.

1. Delegate Decision-Making Authority

Identify key managers and empower them to own decisions in their areas of expertise. Start with smaller decisions and build up to more critical ones.
Use delegation as a coaching opportunity, providing feedback and guidance to help your team grow in confidence and capability.

2. Document Core Processes

Focus on documenting high-level operational, financial, and strategic workflows to ensure consistency and scalability. For example, create detailed playbooks for client onboarding, weekly revenue reporting, and sales pipeline management, key decision-making frameworks and processes critical to staffing firms looking to maintain consistency and growth.
Use tools like playbooks or checklists to make these workflows accessible and easy for your leadership team to follow, reducing dependency on you.

3. Diversify Client Relationships

Assign key clients to team members and ensure they take the lead in meetings, communication, and account management.
Develop a system where no single person (including you) holds more than 20% of client relationships to minimize risk.

4. Build Leadership Depth

Identify high-potential employees and invest in their development through mentorship, leadership training, and stretch assignments.
Cross-train your leadership team to ensure they can cover multiple roles if needed, demonstrating stability to potential buyers.

5. Shift Focus to Strategy

Dedicate specific time each week to focus solely on high-level goals, market trends, and growth opportunities rather than operational tasks.
Use group strategic planning sessions and an Advisory Board to align your team around long-term objectives and track progress.

6. Adopt Scalable Systems

Implement automation tools for repetitive tasks like payroll, invoicing, and scheduling to free up time for strategic work.
Invest in robust ATS, CRM, and AI-driven platforms to improve efficiency and support growth in staffing operations.

7. Create a Transition Plan

Define a clear timeline and roadmap for your exit, including milestones for shifting responsibilities to your team.
Share the plan with key stakeholders early to ensure alignment and minimize disruptions during the transition.

8. Make Yourself Replaceable

Gradually step back from daily operations, starting with minor tasks and moving toward critical functions over time. For example, begin by delegating recurring tasks like weekly reports within the first six months, then progress to strategic responsibilities such as client negotiations over the next year.
Position yourself as a mentor and advisor rather than the go-to problem solver, ensuring the business thrives without your constant involvement.

The Bottom Line

The paradox of Owner/Leadership is this: the more indispensable you are, the harder it is to scale or sell your business. For example, we’ve seen deals fall apart when buyers realize the owner is the only one maintaining client relationships or making critical decisions. Buyers don’t want to inherit a dependency, they want a business that runs on systems, not a single person. Great Owner/Leaders focus on building businesses that can thrive without them.

By following these 8 steps, you’ll set the foundation for a business that’s not only resilient and scalable but also positioned to thrive, with or without you at the helm.

Growing Your Business, Selling Your Business, Staffing Industry M & A Activities, Staffing Tech, ValuationMarch 27, 2025

Cybersecurity in Staffing Industry Mergers and Acquisitions

By: Brian Kennedy

What if a $30 mistake cost you millions and killed your M&A deal?

It sounds extreme, but it happens more often than you’d think, especially when it comes to cybersecurity. A small vulnerability that seems insignificant can open the door to catastrophic consequences. Just ask the owner of a staffing company who was on the verge of closing a lucrative deal after years of hard work, only to see everything fall apart, because of a fish tank thermometer.

The company had a beautiful saltwater aquarium in its office, and the owner installed a WiFi-connected thermometer to monitor the water temperature remotely. What he didn’t realize was that the device had no security controls and was connected to the company’s network. A hacker exploited this tiny vulnerability, gained access to the firm’s entire system, and deployed ransomware, locking down all their data, including payroll records, candidate information, and client contracts.

The company was forced to pay the ransom, but the damage was done. The buyer walked away from the deal, citing cybersecurity negligence as a major risk factor. The seller’s firm, once highly valuable, had lost millions in potential deal value over a $30 mistake.

This is not a hypothetical scenario. It really happened. And it underscores why cybersecurity is no longer just an IT issue, it’s an M&A dealbreaker.

Meet the Experts

To explore how cybersecurity impacts staffing M&A and what firms must do to protect themselves, I spoke with two of the leading experts in cybersecurity and enterprise architecture from Charter, a company which has driven successful digital transformations for clients globally since 1997.

Mike Glover – One of Canada’s most highly regarded enterprise architects, with deep expertise in business strategy, technology integration, and large-scale cybersecurity transformations. He has advised companies facing high-stakes M&A transactions where data integrity and risk management are paramount.

Krisann McDonnell – An M&A and cybersecurity leader specializing in assessing and mitigating risks in high-value transactions. Holding TOGAF, CISM, and NIST certifications, she leads security practice at Charter and works directly with firms to uncover hidden vulnerabilities and ensure compliance.

Both Mike and Krisann have seen firsthand how cybersecurity can turn an acquisition from a growth opportunity into a financial and operational nightmare.

What This Series Will Cover

Over the next four articles, we’ll take a deep dive into the most critical cybersecurity challenges facing staffing firms in M&A transactions:

Why Cybersecurity is Now a Dealbreaker in Staffing M&A – Understanding how cyber risks influence valuations and transaction terms.
Hidden Cybersecurity Risks in Staffing Acquisitions – Identifying the most overlooked vulnerabilities that could compromise a deal.
Post-Acquisition Cybersecurity Integration – Addressing challenges in merging security systems and ensuring a smooth
How to Strengthen Cybersecurity Before Entering the M&A Market – Practical steps staffing firms can take to protect themselves and enhance their marketability.

Cybersecurity is no longer optional in staffing M&A. It is a core business risk that must be addressed proactively. By leveraging the expertise of Mike Glover and Krisann McDonnell, this series will equip staffing firm owners, buyers, and investors with the critical insights needed to execute secure and successful transactions.

Keep reading for Part 1, where we explore why cybersecurity has become a deciding factor in staffing M&A deals.

Part 1 – Why Cybersecurity is Now a Dealbreaker in Staffing M&A

Mergers and acquisitions in the staffing industry have always been driven by financial performance, client contracts, and operational efficiency. However, in today’s market, cybersecurity has become a major factor in deal success or failure. Buyers are scrutinizing security postures more than ever, and firms with weak cybersecurity protocols are increasingly facing reduced valuations or even deal cancellations.

To understand why cybersecurity is now a make-or-break issue in staffing M&A, I sat down with Mike Glover, one of Canada’s most experienced enterprise architects and a leader in cybersecurity for M&A transactions, and Krisann McDonnell, an M&A and security expert at Charter.

Brian Kennedy: Mike, cybersecurity wasn’t always a top priority in staffing acquisitions. What changed?

Mike Glover: “A few years ago, buyers treated cybersecurity as an IT issue they could deal with after the acquisition. That’s no longer the case. Now, buyers want proof of strong security practices before closing a deal. If they uncover security gaps, they’ll either walk away or use them as leverage to lower the valuation.”

Brian: Why is cybersecurity an even bigger concern in staffing M&A than in other industries?

Mike: “Staffing firms handle enormous amounts of personally identifiable information: candidate resumes, payroll details, client contracts. If that data gets compromised, the entire business model is at risk. A breach doesn’t just impact one company; it can expose thousands of candidates and clients. Buyers don’t want to inherit a data security mess, and they’re going to pay less, or not buy at all if they sense risk.”

Brian: So how does cybersecurity affect valuation in real-world deals?

Krisann McDonnell: “Buyers aren’t just looking at EBITDA anymore. Cybersecurity risk is now a major factor in valuation. A firm with a strong security posture can command a premium price, while one with poor security might see its valuation drop overnight. I’ve seen firms lose millions in potential deal value simply because they didn’t have proper security controls in place.”

Mike: “I worked on a deal where the seller assumed security wouldn’t impact valuation, but when the buyer’s tech team did a deep dive, they found unencrypted payroll records and no multi-factor authentication. The buyer immediately cut their offer by 20%. The seller was blindsided, but in today’s market, buyers aren’t willing to take that risk.”

Brian: What security red flags are most likely to make buyers reconsider a deal?

Mike: “There are a few major ones:

Outdated software – Staffing firms often use legacy applicant tracking and payroll systems that lack modern security controls.
No multi-factor authentication (MFA) – If employees can log into critical systems with just a password, it’s an easy target for attackers.
Third-party vendor risk – Many staffing firms use third-party providers for payroll, background checks, and CRM tools. If those vendors have weak security, the risk extends to the buyer.”

Krisann: “I’d add past security incidents to that list. A lot of sellers don’t realize that previous breaches, even if they were resolved, can still impact valuation. Buyers want full disclosure, and if they find out about a breach the seller didn’t mention, it immediately raises trust issues.”

Brian: So for staffing firms thinking of selling, what should they do now to avoid cybersecurity hurting their valuation?

Mike: “Start preparing early. Sellers should:

Conduct a cybersecurity audit before a buyer Fixing problems before due diligence prevents last- minute deal surprises.
Ensure regulatory Staffing firms operate across multiple jurisdictions, and buyers don’t want compliance headaches.
Harden access controls. Remove ex-employee access to critical systems and require multi-factor authentication for sensitive data.”

Krisann: “Also, be ready to prove your security maturity. Buyers love seeing a cybersecurity due diligence package that outlines your policies, recent audits, and security improvements. It signals that security is a priority, which builds confidence and protects valuation.”

Brian: Final thoughts? What should staffing firms take away from this conversation?

Mike: “Cybersecurity isn’t just an IT issue anymore. It’s an M&A deal factor that can determine whether a transaction moves forward or collapses. Sellers who ignore it risk losing millions.”

Krisann: “Security preparedness isn’t just about avoiding penalties, it’s an opportunity to increase valuation and buyer confidence. The firms that address cybersecurity early will have the most leverage when negotiating a deal.”

Conclusion

Cybersecurity is no longer optional, it’s mandatory in today’s M&A environment. For staffing firms looking to enter the market, taking proactive steps to strengthen cybersecurity before the process begins can make a world of difference.

By conducting audits, upgrading systems, training employees, and ensuring compliance, firms can increase their marketability, protect their valuation, and set themselves up for a successful transaction.

Take Action Now.

If you’re considering selling your staffing firm, don’t let cybersecurity be the reason you lose value or delay your deal. The risks you overlook today could be the very reason your deal falls apart tomorrow.

As someone who specializes in selling staffing companies, I can tell you that the firms that address cybersecurity issues upfront are the ones more likely to get top dollar. It’s a marketable characteristic of your enterprise. If you want to make your business as attractive as possible to buyers, it’s crucial to address any cybersecurity vulnerabilities now.

Charter can make that process easier. They offer confidential cybersecurity assessments that help firms identify weaknesses, improve their digital hygiene, and ensure they’re ready for a successful transaction.

No cost. No pressure. Just real insights.

Schedule a complimentary, confidential consultation with Charter today: [kmcdonnell@charter.ca]

You can also ask us your M&A questions: brian@racohenconsulting.com and be sure to check our Resources Library out here: https://racohenconsulting.com/library

Your business value depends on it.

In the Part 2, we’ll examine hidden cybersecurity risks in staffing acquisitions and how buyers can uncover potential threats before closing a deal.

Selling Your Business, Uncategorized, ValuationApril 23, 2024

What is Your Staffing Company Worth in 2024?

This article is summarized in the January/February 2024 SI Review published by Staffing Industry Analysts; however, the limited space in that format required us to edit the copy. Here is the expanded, complete article:

R.A. Cohen Consulting, with over 200 transactions completed and a team with a century of staffing and M&A expertise, has observed a shift in the M&A landscape. In 2023, economic challenges led to a decrease in staffing company acquisitions, with SIA reporting 127 US transactions in the first three quarters, compared to 221 in CY 2022.

Entering 2024, cautious optimism emerges. Buyers, equipped with substantial cash reserves, are increasingly motivated to acquire, particularly with potential economic recovery and possible easing of interest rates.

While most staffing sectors may continue to see lower market multiples, specific niches in healthcare, IT, RPO, and direct hire are experiencing higher valuations. For firms in these areas, capitalizing on current market opportunities could be advantageous. Conversely, firms facing ongoing valuation and multiple pressures might find it more beneficial to adopt a waiting strategy, potentially resulting in improved valuations and stronger market positions.

Different staffing segments and company sizes attract different buyers. Even with continued demand, some buyers at the low end of the market (those who are targeting companies under $15m in revenue or less than $750k in earnings) are taking a wait-and-see attitude. That said, we are receiving a high volume of requests from buyers for our inventory of available companies in general, and that bodes well for the year, even if multiples don’t rise.

The staffing industry maintains a positive trajectory, indicating sustained demand across various segments. Firms with higher-margin services are particularly well-positioned to command higher multiples as the market conditions improve. Up until 2023 we had several straight years of high demand and saw some multiples at their highest level in two decades. Despite the slight decline in the 2023 economy, we continue to be optimistic about M&A activity for 2024. Predictions for increased staffing growth beyond this downturn blip show investors the industry is a great place to increase their earnings.

Healthcare, Light Industrial and IT staffing continue to be the markets in focus to most current Buyers. We expect to see more interest going forward in the Accounting/Finance, Admin/Clerical, Skilled Trades and Engineering segments, given current staff shortages in many service businesses and construction-related professions.

As we said in last year’s report, staffing firms under $15m in revenue will need distinctive competencies to attract more buyers from an overall smaller pool. Examples include low-cost, effective customer/candidate acquisition metrics; great margins; niche specialty placement type, innovative technology usage, excellent MOD rate, etc. Overall, companies that the market perceives as average are likely to see lower valuations at least for the first half of 2024. The more above-average boxes you can check-off, the better your valuation will be. There are clearly some real-time examples of exceptional companies transacting at premium multiples.

To estimate your own company’s current value, use the information below to rate yourself and contact RACC to get a more detailed, personalized, complimentary back-of-the-envelope valuation.

By grading the quality of your company based on the information in this article you can roughly determine what your company might sell for in today’s market.

Begin by examining the following elements used to help arrive at a fair market value for your business. Assign a point amount for each level of performance by using a scale of 1 to 5 points.

1. High Growth Rates are always a sign of a healthy business with strong market acceptance. Since 2020, if you are growing at an annual rate of:

15% + per year, give yourself 5 points.
12% -14.9% per year, give yourself 4 points.
9% – 11.9% per year, give yourself 3 points.
6% – 8.9% per year, give yourself 2 points.
Under 6% per year, give yourself 1 point.

2. High Gross Margins are to some degree relative to your staffing sector; certainly, a buyer wouldn’t expect the same margin level from a Light Industrial firm as they might for a Healthcare Staffing firm. Keep in mind (as an example) because of higher bill rates, GM dollars should be much higher in an IT staffing firm than they are in a Light Industrial staffing firm, even if both operate at 15% GM. So, rate yourself accordingly.

If your gross margin is 25% or more, give yourself 5 points.
If your gross margin is 22% – 24.9%, give yourself 4 points.
If your gross margin is 19% – 21.9%, give yourself 3 points.
If your gross margin is 17% – 18.9%, give yourself 2 points.
If your gross margin is 15% – 16.9%, give yourself 3 points if you’re in IT, Engineering, or other high billing sectors;
Give yourself 0 points if you’re in traditional sectors, such as LI, Clerical, Commercial etc.

3. Major or Growing Markets are always in greater demand by most buyers, although some buyers do prefer secondary or tertiary markets as there is often less competition.

If you are in a top 25 market and/or a rapidly growing market, give yourself 5 points.
If you are in a top 40 market and/or a rapidly growing market, give yourself 4 points.
If you are in a transitioning marketplace, where some businesses are moving out to healthier markets give yourself 3 points.
If you are in a marketplace where many of the long-term employers have
either closed, moved offshore or to areas with lower labor costs and business friendlier laws give yourself 2 points.
If you are in a town with a population of fewer than 100,000 people, give yourself 1 point.

4. Strong Market Position/Reputation is a less objective measurement than some other items we’ve listed.

If you are a recognized market leader by customers (yours and others’) in
your market area, give yourself 5 points.
If you are an up and coming, superstar firm, getting lots of local recognition, give yourself 4 points.
If you have had a stable presence in the market for ten or more years, give yourself 3 points.
If you are “just there” but with very little awareness of your service in the
market, give yourself 2 points.
If you are under the radar serving a small group of satisfied clients, give yourself 1 point.

5. Diverse, Long-term and Stable Customer Base – Buyers always prefer a stable, diverse customer base:

If you have a stable list of long-term repeat customers, especially if some or many are growing and/or your top client is no more than 12% of your total sales volume, give yourself 5 points as buyers seek stability and customer diversification.
If you have a stable list of diverse customers and your top spending client spends between 12% – 15% with you, give yourself 4 points.
If your top spending client represents between 15 -18% of your sales, give yourself 3 points.

If your top two clients spend 30% or more, give yourself 2 points.
If you have this week’s customers and you know that next week’s customers are totally different this increases the risk and the cost for the buyer; and/or if your top customer is more than 30% of your revenue, give yourself 1 point.

6. Multiple Offices are still preferred as they are perceived by buyers to spread risk. This applies to staffing firms that require a strong in-market, in-person presence (light industrial, office admin, hospitality, etc.). If your business can run on a fully remote basis give yourself 3 points. We suggest this middle-of-the-road number because fully remote businesses aren’t appealing to all Buyers.

If you have an annual sales volume above $12M with 3 or more offices, give yourself 5 points.
If you have annual sales of $9M with two or more offices, give yourself 4 points.
If you have 2 offices doing $7M in sales, give yourself 3 points.
If you have a single office doing over $5M, give yourself 2 points.
If you have one office billing less than $5M, give yourself 1 point.

7. Annual Sales Volume – Size in terms of annual sales volume adds value to the buyer, all things being equal (e.g.: GM% and bottom-line profitability). There are no points allocated here; the chart at the end of this document takes this into consideration.

8. Good management depth is extremely important to a buyer so they can see the business can be managed after the seller’s exit.

If you have solid, experienced line management operating your business that will stay on and grow the business, give yourself 5 points.
If you have young, sharp, aggressive, keen but less experienced staff that will stay on and contribute to the firm’s on-going growth, give yourself 4 points.
If you have a solid crew of performers that can maintain the business, give yourself 3 points.
If you have one or more weak links or vacancies in an important functional staff/management area, give yourself 2 points.
If the owner is the key to the business and the buyer will need to install a
manager(s), give yourself 1 point.

9. Good Insurance, a clean legal history and accurate record keeping build confidence in buyers.

If you have declining WC incidents and/or fewer SUTA claims, combined
with books of account that add up properly, give yourself 5 points.
If your books balance and insurance claims are steady, give yourself 4 points.
If your books balance and your insurance claims are in line with industry numbers, give yourself 3 points.
If your insurance claims are in line but your books don’t balance, give yourself 2 points.
If your WC losses or SUTA claims are increasing and if your books are not totally reliable give yourself 1 point.

10. More Contract/Temp Staffing vs. Perm/Search Revenue improves value because contract and temp revenues are more stable and predictable than Search or Direct-hire revenues.

If your Search/Direct Hire business is less than 5% of your annual revenues, give yourself 5 points.
If your Contract/Temp business volume is 90% or more, give yourself 4
points.
If your Contract/Temp business is growing in proportion to your Search/Direct Hire business, give yourself 3 points.
If your Search/Direct Hire business exceeds 15% of your annual revenues, give yourself 2 points.
If your sales in Search/Direct Hire exceed 20% of your annual business
volume, give yourself 1 point.

Heading Text

There are always exceptions to the ratings above, if you would like a confidential analysis of your market value contact:

Sam Sacco (910) 769-4057 or sam@racohenconsulting.com
Brian Kennedy (416) 229-6462 or brian@racohenconsulting.com
Mark Zacha (616) 318-7979 or mark@racohenconsulting.com

www.racohenconsulting.com

This is a © work product of R. A. Cohen Consulting and may not be distributed or reproduced without their express written consent.

Earnout Dice-Roll?? Secure Your Bet with a GM Approach

In the staffing industry, understanding the financial dynamics of a business is crucial, especially when it comes to acquisitions. One key aspect often under scrutiny is the earnout structure. But what’s the best way to approach this?

The Core of COGS:

The real costs in our industry boil down to our client-facing workforce. This includes wages, statutory obligations, and workers’ compensation. These expenses form the core of our Cost of Goods Sold (COGS). After these are paid, what remains is our gross margin. This isn’t just any figure; it’s the lifeblood of our business, powering everything we do, whether it’s temp, contract, or direct-hire placements.

Earnouts and the Complication with EBITDA:

When it comes to earnouts in staffing company acquisitions, some buyers lean towards tying them to EBITDA or Net Income. However, this approach can be fraught with complications. Post-sale, the new owner usually takes over operating expenses, and as we all know, accounting practices can vary. This variability can lead to gray areas and potential disputes when determining if the earnout target has been met.

Why Gross Margin Makes Sense:

This is where gross margin becomes a game-changer. It’s a straightforward calculation: revenue minus the direct costs associated with temp/contractor placements. Clear, unambiguous, and an ideal measure for evaluating earnout targets. It accurately reflects the true performance of the business and how efficiently all types of placements are managed. Most importantly, it’s a reliable indicator of business health, unaffected by variables that might be out of control post-sale.

Setting Fair Earnout Targets:

With this in mind, it’s advisable to set earnout targets irrespective of placement type. The target should match the gross margin amount present when the buyer conducted their valuation and made their offer. This ensures the target is fair, based on current business performance, and achievable. It’s an equitable approach, reflecting the business’s ability to sustain its gross margin post-transaction.

Provisions for Performance:

Effective earnouts should include provisions for both underachievement and overachievement of the target. It shouldn’t be an all-or-nothing scenario. Falling short means earning less, while exceeding expectations should rightly result in more. This creates a balanced, performance-based structure that’s fair for both parties.

Conclusion:

In staffing company acquisitions, focusing on gross margin for earnouts offers clarity, fairness, and a true reflection of business performance. It’s a strategy that aligns interests and promotes a healthy, sustainable business post-acquisition.

Don’t leave your M&A journey to chance. Reach out to us today.

Call us or send a message and let’s discuss how we can support your goals and ensure a successful transition for your staffing company.

Selling Your Business, Uncategorized, ValuationApril 22, 2024