Interview: Executive Search Analyst Discusses State of Industry

June 19, 2009 – Timothy McHugh is an equity research analyst at William Blair & Company. Mr. McHugh joined William Blair & Company in 2002 and is a business services analyst specializing in the consulting and staffing sectors. Previously, Mr. McHugh was a senior research analyst at the Federal Reserve Bank of Chicago. With the executive search industry being hit hard by the weakened global economy, Mr. McHugh discusses the current state of the industry and what to expect in coming months.

When did you begin to see a severe downturn in the recruiting sector; recruiters tell us they began to spiral downward last September.

Most business saw some weakness, but remained relatively healthy in early 2008. Like many companies, demand fell off much more significantly during the fall of 2008.
What are you seeing now, has the industry bottomed out or are markets still declining?
While there has been some month-to-month variation, particularly around the Easter holiday, most firms that we have spoken to have seen relatively flattish monthly sequential trends thus far during 2009.

Compare and contrast Heidrick & Struggles and Korn/Ferry. What things have these firms done to weather poor economic conditions?

Both Heidrick & Struggles and Korn/Ferry have been impacted significantly by the recession. Korn/Ferry was slightly quicker to make some headcount reductions, but almost every firm in the industry has taken significant reductions at this point. Heidrick & Struggles has been impacted by a slightly greater exposure to the financial services sector, but it has performed better in Asia. We assume that Heidrick & Struggles will return to profitability in the third quarter of 2009.

How does the search industry look heading into the summer months, and how do you see the year wrapping up?

Our estimates assume that demand for executive search services will remain relatively weak until early-to-mid 2010, at which point we have forecast a gradual improvement in demand. We do not expect positive year-over-year revenue growth to return for many firms until late 2010. We would expect that the United States is the first market to rebound during the next year. The secular growth of the search industry in Asia also should help this market rebound sooner than Europe.

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