During a recent BVR webinar, Mandeep Sihota (Citrin Cooperman) pointed out some common errors she sees in valuations of staffing agencies. First of all, there’s a misconception that one size fits all when it comes to these types of firms. That “absolutely cannot be true for staffing companies,” she says. There is such diversity in this industry in terms of the type of firm, the services that are offered, and the industries serviced.
Multiple mismatch: If this diversity is not taken into account, it’s common to have a misapplication or misaligning of multiples. “Pulling transactions and blindly applying multiples is what I call mismatching the multiple because you are not taking into consideration the specific unique aspects of the industry that is being serviced or the services offered,” Sihota says. For example, multiples for temporary staffing firms are significantly different than the multiples that you will find for permanent firms, she points out. Likewise, she sees multiples from firms that are offering completely different services or that are servicing a totally different industry being applied to the subject firm.
Therefore, when selecting multiples, make sure you’re comparing apples to apples.
Extra: According to a report from Duff & Phelps, 56 staffing industry M&A transactions were reported in the first six months of 2014, a 14% increase over the 49 transactions announced in the first six months of 2013.
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