A Buyer’s Perspective on Human Capital Transactions
HUCAI supports staffing companies in trading your company. In order to prepare your company for an exit, it is extremely important to understand the buy sides intentions. As the final evaluation and the transaction volume depends on how attractive the buyer finds asset in question. The purpose of this article is to understand what the buyer’s perspective exactly is.
The process can be very varied. There are man ways to access the human capital investment market, similar as to when selling a single asset of a company. Since the valuation available are much higher, however, more caution should be exercised. It is essential to take note of the following points.
Direct and indirect contact by the buyer and response by the seller
Direct contact (i.e. by an employee of the buyer – usually a business developer or M&A manager) or indirect contact by an agent. From our experience, the majority of the approaches are made indirectly, because the buyer often does not want to be perceived openly on the market and only want to make an analysis before they reveal themselves.
It is therefore important to know the players in order to be able to assess who you are talking to here. Possible contacts can be made through the following institutions.
Direct:
- Trade Buyer / an employee of another staffing company
- Family Office / an employee of a funded family
- venture capital investment setup / an employee of a funded investment vehicle
Indirect:
- Bank / Brokers Accountants / Management
- Consultants
- Corporate Finance Houses
How can such inquiries be answered effectively?
Here again, the solution can be divided into direct and indirect. Either you hire someone (BD, M&A manager) who prepares and works through these topics, or you hire an external consultant who will help you and do the work for you.
Basically, we recommend hiring a company like HUCAI to keep these inquiries away from the management of the staffing company and to have them pre-qualified by HUCAI first. There are often “black sheep” on the go who only collect information, and it is therefore necessary to carry out an extensive reference check before data is sent. In addition, it often makes sense to find out who is behind an “indirect approach” in order to remove unsuitable companies from the process from the outset.
Furthermore, the seller can of course contact potential buyers directly/indirectly. Here, too, HUCAI supports the seller in finding the right buyer. It goes without saying that these discussions should always take place under a valid NDA and at C-level in order to avoid negative effects on the business.
How can a pitch deck support buyer evaluation?
The attractiveness of a purchase for the buyer is largely determined by the following three points.
- Strategic fit (market access, skill/industry, valuable asset structure). Au
- Financial strength (both for the purchase and for the financing afterwards)
- Cultural fit (often underestimated, but e.g. cost-oriented vs. innovation-oriented culture do not go together)
There are different tools on the market to determine these points. Porter’s “5 Forces”, also known as industry structure analysis, are certainly a perennial favorite. The following points are considered with regard to a possible acquisition and how are the five forces influenced.
- Bargaining power of suppliers
- Bargaining Power of customers
- Threat from new competitors
- Threat from substitute products
- Intensity of competition in the industry
