Consolidation in the Recruitment Industry

by TMT Newswire

By Paula Santonocito

www.Onrec.com -- January 9, 2009 --This past year several recruitment companies have merged, following trends in other industries.

In the current economic climate, will more recruitment companies join forces? And if so, what might it mean to the industry as a whole?

Defining the Industry

The recruitment industry, or online recruitment industry, actually encompasses or overlaps with several other industries.

Recruitment includes staffing companies, and it includes companies that fall under the umbrella of computer software. Still other companies, for analysis purposes, get grouped under the heading of consulting. There are also companies categorized as advertising and marketing firms.

As a result, it can be difficult to get a handle on what is currently happening, and what might be likely to happen in the near future.

Add to this an uncertain (some might say unprecedented) economic environment and forecasting becomes even trickier.

M&A Trends

Nevertheless, mergers and acquisitions (M&As) in the recruitment and related fields are driven by the same issues that trigger activity in other sectors. These factors include greater access to customers, additions of products and services, and opportunity for long-term growth.

In a recession, there tend to be other drivers of M&As as well.

Accenture, a leading global consultancy, points out that in times like these companies are apt to be valued much lower. The current economic environment also creates less competition when it comes to acquisitions, which means fewer suitors and less bid inflation. In other words, the potential exists to acquire companies for less.

According to Accenture, the current environment creates opportunity for organizations looking to fill strategic gaps or strengthen market positions--provided of course they are in a financial position to do so.

Evaluating Opportunity

Be that as it may, the firm recommends that a company examine a potential M&A from four critical standpoints before proceeding.

First, the goal of an M&A should always be to meet a strategic objective, whether to close geographic, product or services gaps. The message? A deal is a deal only if it meets a need.

Second, when considering an M&A in this environment, a company should look for a good company dragged down by the market. The message here? Smart shoppers know a deal is a deal only when it’s a quality product.

Third, look for synergy potential. This includes synergy of products and services, as Accenture indicates. However, synergy also involves an often overlooked aspect of mergers: corporate culture. Separate research from Accenture, as well as research conducted by The Conference Board, a global membership and research organization focused on business intelligence, shows corporate culture conflicts result in less-than-successful mergers.

Finally, attention to execution is essential to M&A success. This includes everything from defining objectives to determining requirements and integrating processes and products. Likewise, attention to employee issues and cultural differences is paramount.

Large and Small Players

Although Accenture’s recommendations apply to large and small companies alike, organization size does matter when it comes to issues of consolidation.

Hoovers, a D&B company and leading provider of global business information, tools, and commercial insight, points out that the barrier to entry for a staffing company, for example, is low; startup costs are minimal.

And online-based staffing businesses have even greater financial advantages.

“Online sites are cheaper to run than traditional staffing companies,” says Adam Anderson, a Hoovers editor who covers business services, including staffing and online recruitment, and advertising and marketing.

The motivation for consolidation for a small company, therefore, will likely be different from that of a larger organization.

As an example, Anderson cites global staffing company Randstad, which in 2008 acquired recruitment services provider Vedior, based in the Netherlands, for $5.1 billion (U.S. currency). “What drives these global players is access to different countries and widening client bases on a big scale,” he says.

For large companies, the opportunity is worth the consolidation risks, Anderson tells Onrec.

In the current climate, smaller companies may not have the reach to reap the same level of benefits. “We’re going through a recession right now, and that’s not really good for the staffing industry,” Anderson says.

Accordingly, he expects smaller companies to stop and focus on a niche area.

Customer Choices

In a down economy, one question that arises with regard to companies of all sizes is market saturation. With regard to job boards, for example, Anderson poses the question, “Are too many flooding the market?”

Here again, however, niche matters. Anderson cites SnagAJob.com, a site aimed at hourly employment, which includes the restaurant and retailer niches, as an example.

Nevertheless, not all niches are equal, particularly in this market. It’s not a good time to be a job site catering to auto workers, Anderson says. Jobs in financial services likewise have stalled.

Even for the company that has a solid niche, competition can be fierce. Social media is changing the mix, as jobseekers utilize sites liked LinkedIn for employment purposes. In addition, Anderson cites Craigslist and newspapers as alternatives to job boards.

When business is booming, it can be tough enough. Take away the volume and, well, things become more difficult. “Staffing is driven by job growth. I see the brakes being put on,” Anderson tells Onrec.

Going Forward

What will determine whether companies merge?

“It also helps, when you’re the big players, to diversify your niche areas,” Anderson says.

For large companies, the opportunity to expand in or into another market, whether in terms of location or product/service offerings, is indeed a motivator, as Accenture notes.

But where does this leave small and midsize organizations?

“When you’re the small guys, focus on local, niche markets,” Anderson says.

For some small and midsize companies joining forces may make sense. Indeed, last month at his Cheezhead blog, Joel Cheesman reported that Shaker Recruitment Advertising & Communications, the second-largest privately-held recruitment advertising agency, has acquired CareerSite.com, a provider of private-label recruitment sites.

But for most companies, weathering the economy will more likely involve belt-tightening.

It will also require creativity. “Cross pollinate your niche markets,” Anderson says. For companies with a physical presence, a strategy might involve opening new offices in promising markets, he says.

Users of Products and Services

For jobseekers and employers that utilize recruitment products and services, consolidation has an impact.

Fewer players mean fewer choices. Less competition can ultimately result in higher fees as well, although Anderson tells Onrec that prices generally do not go up right after companies merge. “They have to figure out their own staffing problems from consolidation and integration,” he says.

The current economic climate also plays a role in pricing, no matter how many or how few companies offer a particular product or service. In an environment where retailers, auto dealers, realtors, and others are slashing prices, it is difficult to command top dollar, even for ace players in a less crowded field.

“It just shows you how much the economy touches every industry,” Anderson says. “Everything’s tied together.”

Paula Santonocito is a business journalist specializing in employment issues, including online recruitment, which she has covered since the early days of Web-based employment advertising and candidate sourcing. Paula is features editor of Online Recruitment Magazine’s North American edition; AIRS News editor; contributing editor to TalentManagementTech.com (TMT); career editor of SingleMindedWomen.com; and author of nearly 1,000 articles that are featured in many global and domestic publications and information outlets. She can be reached via her website, www.paulasantonocito.com.

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