The process of human capital transactions can be complex and must be looked at on an indivudal basis. Since the assets and business models vary greatly across the recruitment industry and are a distinguishing factor, the transaction phases need to be specified. Following are three phases, however, which are applicable to human capital investment overall.

It is therefore extremely important for the seller to prepare a sales deck / investment case in order to make the initiation efficient. An investment case helps you as a seller to establish a clear positioning and to show a potential buyer precisely what can be achieved through an acquisition. It is very important for the buyer to know how quickly the seller wants to sell, what kind of deal they are looking for and how the company is financially positioned. Here, too, HUCAI helps to create such a sales desk / investment case with many years of experience. A deal always consists of the item value and the future value. Everyone knows the perfect deal where 1 plus 1 = 3. There are many examples of such deals where it was not just about the item value but about what can be achieved together in the future. 

Ideally, the transaction initiation leads to terms and conditions with conditions presedence. The buyer will carry out a business valuation for the next 4-10 years. This means that it is very important that the seller has a reliable business forecast that derives a good forecast for the future based on the past 3-5 years. The prognosis should differ in best/normal/worst case or address specific trigger points.

One way of minimizing risk is for the buyer to keep the seller in business for a certain period of time (1-3 years) and to keep them in the company via an earn-out (and better multiplier) or other hold-backs. Earn-Outs are held by the seller in the company by first buying a part of the company (usually >51%) and selling the remaining shares over a longer period of time (1-5 years) and the valuation of this sale depends on the success of the business activities . Hold-backs are payment values ​​withheld until a certain event has occurred (eg existing legal proceedings are positively concluded or certain business goals are achieved). A longer commitment can be very profitable for the seller, but it means a longer commitment.

The conclusion of the sales initiation phase is completed with the elaboration of “deal terms”. HUCAI supports you in working out the ideal parameters. 

The company valuation by the buyer can take place on the basis of different factors. In company valuation, a distinction is made between overall valuation methods, earnings value methods and multiplier methods. Depending on which deal is sought, one or the other valuation method is advisable. It is common in the recruitment industry to talk about a multiplier. Ie a factor of the EBIT that determines the enterprise value. The level of the multiplier depends on various factors and, based on experience, is between 3% and 12% of EBIT. Corporate value drivers are contract business, a high run rate (number of freelancers in the business), high EBIT, an interesting & scalable business model, financial strength and of course the management team. 

In the due diligence phase, the buyer tries to evaluate all existing and potential risks and include them in the purchase price as far as possible. To do this, he will call on a team of lawyers, tax and technical experts to put the documents available in the “data room” through their paces.

The purpose of the due diligence phase is to generate a tangible purchase offer.

Among other things, financial data (BWA, JA, salary structures, etc.), buildings & other assets, IT infrastructure, inventions or trademarks, customer overview (concentration, payment terms, business areas, risks), legal points (provisions for lawsuits or status determination procedures, etc.) are checked. ). All data should be as accurate and honest as possible. There is nothing worse than a due diligence being aborted because data was knowingly reserved. Furthermore, any finding in the aforementioned points will most likely result in a purchase price adjustment. 

The seller is therefore well advised to create a functioning data room and to view and evaluate the possible risks in the preparation and make them available to the buyer “up front”. We have also had a good experience when the seller has written a “selling book” over the years in which the strategy, target achievement and key data in the plan and actual have been recorded and tracked. 

HUCAI supports the seller in preparing the above documents and offers a sparring partner for the seller, since the buyer will have significantly more due diligence staff, which can also lead to confusion for the seller.

If the seller has sold the asset or equity in full then the engagement is complete after the sale is completed, but if there is an integration phase there may still be a work intensive phase ahead. 

If an earn-out period has been agreed, the seller must support the efforts as much as possible so that the valuation can be positively influenced. Care must be taken to ensure that new employees are hired in order to grow in the new business areas, that customers need to be looked after and scaled, that the technology of both companies is coordinated, that the back office (HR, finance, IT, etc.) melts together and works together efficiently.

HUCAI supports the seller in this difficult phase and stands by the seller as a business-focused consultant.

The 100-day plan known from politics is a good way to take the first steps properly. This 100-day plan should ideally be made up of an internal and external team so that the business is not distracted from its core business with additional tasks. The best people for this team are just good enough. Because the success of the deal and the earn-out phase depends on it. The seller is also the ideal speaksperson to carry out regular communication. This shows the employee, customer and other stakeholders that the former owner is behind the deal and it is better to communicate too much than too little as uncertainty can be the biggest factor of dissatisfaction for everyone involved. Experience shows that the bigger the deal, the more time and money it takes to make the integration successful.