Boardgame to the Boardroom: Larry Hartmann Doubles Down on Growth

Entering a post-COVID-19 era of growth and expansion, the CEO of ZRG offers proof positive that search firms can make great investments. At a time of growing interest in recruiting firms and talent platforms from private equity investors, his strategy of continuing to buy businesses during the pandemic is setting the pace.

September 29, 2021 – When Larry Hartmann, chief executive officer of ZRG, was a youngster, you could find him playing sports with the other kids in his neighborhood. He was an excellent team player by all accounts. But, as one old friend tells it, he also had another youthful passion: the board game Monopoly. And though the leader of one of the fastest growing mid-sized global executive search firms chuckles at the memory, there is no denying the skills he honed buying and selling properties with one-sided, multi-colored currency is now paying big dividends in the real world of deal making.

“I was playing basketball, football and doing all those things,” he said. “But in my spare time I did enjoy that game and thinking about strategy.” Mr. Hartmann’s first business, post-Monopoly, started fresh out of college. It was a start-up that he and some colleagues grew to go public and sold to American Express. “I’ve always been an entrepreneur who loves growing things. That’s what excites me – growth and being an underdog and winning. It’s in my DNA – enjoying the game of business and looking at how to compete better,” he said.

These days, Mr. Hartmann still has a knack for rolling the dice – and winning. Backed initially by capital partner Northcreek Mezzanine and for the last several years by RFE Investment Partners, Rochelle Park, NJ-based ZRG has achieved sustained double-digit growth through strategic acquisitions, key hires and building out several interconnected and highly synergistic business lines – among them: executive search, interim talent solutions, and culture transformation consulting.

No Retreat

In 2020 – a pandemic year no less – ZRG posted $67 million in revenue, a 73 percent rise from the prior year, according to 2020 Hunt Scanlon Media Top 50 Recruiters rankings data. This year, ZRG is expecting revenues to range from $130 million to $140 million globally, delivering EBITDA margins exceeding 20 percent. In short order, the firm has expanded to more than 100 managing directors and 300-plus employees working from 33 offices (and remotely) worldwide. Mr. Hartmann said his goal is to scale to $350 million as an integrated, full service HR solutions brand.

With a 20-year operating history firmly in place, ZRG is a desirable and accelerating growth platform that is pleasing the firm’s private equity investors “who perpetually want to know what’s next,” said Mr. Hartmann. And though some of Mr. Hartmann’s moves might have seemed risky, especially during the darkest days of COVID-19, most are already proving prescient.

Executing Growth Strategies Through Mergers & Acquisitions

In this brand new episode of ‘Talent Talks,’ Hunt Scanlon Media host, Rob Adams, is joined by Larry Hartmann, CEO of ZRG. Mr. Hartmann discusses increasing M&A activity in executive recruiting. He also shares ZRG’s approach to deal making and gives additional insight to his presentation at Hunt Scanlon’s M&A recruiting conference. Listen Now!

While many search firms were slashing budgets and letting recruiters go in response to the onset of the pandemic, ZRG made dozens of new hires, added more top performers, and strengthened its management team. Those types of additions continue. This month, ZRG elected Hamilton Bradshaw CEO James Caan to its board of directors. Mr. Caan, who also made a personal seven-figure investment in ZRG, is considered a leading recruitment entrepreneur, having founded and successfully exited talent solutions company Alexander Mann Solutions, and Humana International, which he grew to 147 offices across 30 countries. He also serves as chairman of the Start-up Loans Company, creating over 28,000 businesses to stimulate entrepreneurship in the U.K.

Nor did ZRG retreat from its plans to keep expanding. In January, the firm acquired Turnkey Search, making its entrée into the sports, media and entertainment sector. In its first year alone, given the benefits of joining ZRG’s platform, what is now known as TurnkeyZRG is expected to double its revenues, said Mr. Hartmann. Just this week, TurnkeyZRG hired diversity trailblazer Nzinga Shaw as president. She also takes over at ZRG corporate as chief inclusion and diversity officer and will serve as global practice head of the firm’s growing diversity, equity and inclusion client-facing practice. Ms. Shaw will work closely to expand the business with founder and CEO Len Perna. In three years, said Mr. Hartmann, sports recruiting is expected to be a $10 million business for the firm.

For an encore, in June, ZRG bought Sucherman Group, a media and entertainment-focused search firm.

Then in July, the firm acquired Walking the Talk, a consulting and advisory firm focused on culture transformation. Founded by Carolyn Taylor, who serves as executive chair, the consultancy is a world leader in enhancing performance results by aligning culture with strategy. As pioneers in this field, understanding the impact culture has on growth, performance and reputation, Walking the Talk has grown to become the largest consulting firm solely focused on the culture agenda.

A Serious Disruption

ZRG, of course, is just one firm that reflects the growing appetite that private equity investors have for search firms and related talent businesses. Not so long ago, PE investors viewed executive search as too risky. The industry was seen as highly subject to economic cycles and its financial performance seemed too unpredictable.

But these days, more and more search firms are finding new life as the war for talent rages on and organizations continue to bounce back after last year’s pandemic-driven cutbacks and go full bore to meet the pent-up demand for talent. Some search firms, too, have been able to deploy talent and data analytics to take market share from the larger firms.

Related: Hunt Scanlon Media Launches M&A Advisory Service for Recruiters

“These trends have led to a perfect storm where newer, entrepreneurial entrants are seriously disrupting what had been a pretty mature and established industry pecking order,” said Jeff Becker, managing director, head of M&A, North America, for global M&A advisory firm Equiteq. “And as private equity firms continue to raise larger funds and look for more opportunities in this strong market, they have been more aggressive in funding these emerging platforms, such as with Larry Hartmann and ZRG.”

Data-Informed Talent Decisions

The attraction of search firms to private equity are many. Tobey Sommer, managing director of Truist Securities, points to search firms being capital efficient businesses. “Their strong brands can create a platform for diversification into other adjacencies,” he said. “What’s more, valuations are cheap – cyclical contractions in revenue growth create buying opportunities. There’s also a potential valuation upside from increasingly ESG-friendly business models and a margin upside from opportunities to take out real estate and travel-related costs.” It is, he said, “a highly fragmented global market with significant room for consolidation.”

Recruiting Entrepreneur Makes Seven-Figure Investment in ZRG
ZRG, a leading search firm backed by private equity firm RFE Investment Partners, has elected Hamilton Bradshaw CEO James Caan to its board of directors. Mr. Caan has made a personal seven-figure investment in the company. Mr. Caan is considered a leading recruitment entrepreneur, having founded and exited talent solutions company Alexander Mann Solutions, and Humana International, which he grew to 147 offices across 30 countries. He also serves as chairman of the Start-up Loans Company, creating over 28,000 businesses to stimulate entrepreneurship in the U.K.

Among the key value metrics and considerations, consultant productivity of search firms scores well compared to industry trends. “We have seen substantial differences in per consultant productivity with companies ranging from about $1 million to $4 million in annualized revenue,” said Mr. Sommer. Yet other factors, he said, must also be considered. Among them: Higher productivity levels increase margins, but also concentrate more of the revenue base in a few well-paid individuals; public companies typically target average consultant productivity of around $1.5 million to $2 million annually, but some private firms run far higher; and elevated recruiter productivity relative to historical levels is unlikely to be sustainable absent significant changes to the model.

PE firms tend to be particularly attracted if a search firm has a technology or AI component aimed at boosting recruiting efficiency and speed, while reducing hiring costs. Philadelphia-based PE firm LLR Partners found all that and more when it invested in True, a global executive talent management platform, this spring. In outlining the purchase at the time, LLR partner David Reuter happened to hit on many of the very ingredients that PE firms are looking for in a search firm acquisition: “True is building a future where data will help companies make better-informed talent decisions, even beyond hiring and developing executives. Couple this vision with True’s incredible culture, strong brand, and impressive growth, and we became very excited about the company.”

Counterintuitive Choices

For Mr. Hartmann, the COVID-19 crisis only heightened the possibilities for acquisitions. “We were opportunistic in the pandemic, and we looked at sectors that were negatively affected, and decided to invest,” he said. “We bought a business in the sports space at a time when revenues for professional sports teams were off 80 to 90 percent in some cases, and so certainly search work was down. But we made a bet that we thought sports is here to stay, and that the sector will come back and that if we look long-term it would be a great investment. Some people said it was a counterintuitive time to invest in sports, but we did,” he added.

“Entertainment was the same thing,” he said. “The pandemic hoisted unbelievable challenges on the sector, particularly with content production. When we placed our bet on Sucherman Group, the entertainment sector was on its heels. Now, that sector is bouncing back.”

The acquisition of culture transformation firm Walking the Talk, meanwhile, comes at an opportune time. “Hiring top talent that aligns with a client’s culture objective has been a key success factor for ZRG,” said Mr. Hartmann. “With the addition of Walking the Talk, we will expand our consulting and talent solutions capabilities, helping our clients address challenging topics like change management and culture transformation. Walking the Talk’s intellectual property developed by Carolyn Taylor and the team will enhance our ability to understand, measure and assess culture contribution at multiple levels,” he added. “We see great power in the combination of our two businesses.”

As part of ZRG, Walking the Talk will continue to expand its service offerings globally, particularly to the United States where conversations around culture and DE&I have become central to understanding and implementing human resource best practices. The move to new workplace structures, a result of the pandemic, has only heightened the importance and immediacy of getting culture right.

“We intend to use our expertise in the field of culture, behavior and mindset to enhance ZRG’s ability to select the best candidates for clients, and evaluating their contribution to the client’s culture goals,” said Ms. Taylor. “Now, as a key component of the ZRG team we will be in a better position to meet emerging client needs. It will be exciting to see our advisory work extend into hiring, in a measured way. With ZRG’s data-driven tool kit we are confident that we can keep making an impact for our clients, while broadening the scope of how that impact translates to business performance,” she added.

Beyond new sectors, ZRG is also looking for acquisitions to fill in some of its industry practice areas. The firm, for instance, already had a $10 million life science business when it bought the Toft Group, a boutique early-stage life science recruiting firm, in 2019. “The Toft Group had a $10 million life science business,” said Mr. Hartmann. “But the businesses were very different. Ours was big pharma, big med device, global. Their business was early stage, West Coast-based, venture-backed life science. It created a great opportunity to double down on life sciences.” Today, life sciences accounts for 40 percent of ZRG’s P&L, with roughly 55 professionals dedicated to the platform.

Expanding Horizontally

Also on Mr. Hartmann’s radar is diversification and expanding horizontally into new platforms like interim talent solutions. Global demand for interim placements had already been growing, but the pandemic only accentuated the talent shortage and heightened the immediate need for interim leaders with special technical or management skills who can steer a business through a transition or a transformation. On short notice, interim talent can also provide seasoned experience, the latest thinking and insights, impartiality, and an outside perspective. As such, more industries have begun to embrace interim hiring, and in turn, more search firms are offering executive-level interim talent solutions.

Two years ago, ZRG acquired London-based Holker Watkin, which is focused on supporting client needs for senior-level strategy professionals on a retained and interim project basis. And earlier this year the firm hired Mark Viner, formerly of the search boutique StevenDouglas, to lead its interim solutions team, which serves middle market, private equity-backed companies. “Building interim solutions at ZRG gives me a new challenge to meet, which is something I’ve enjoyed throughout my career in both PE-backed and publicly traded companies,” said Mr. Viner at the time he came on board. “I am eager to support the broader ZRG network and bring this piece of the total search and staffing package online. The deep relationships ZRG enjoys with private equity clients, where we are doing CFO and CEO work for portfolio companies, will certainly pave the way to introduce our expanded capability and help our clients achieve great outcomes through our interim services offerings.”

Related: ZRG Acquires Turnkey Search

Earlier this year, managing director Julie Warden, a seasoned executive search and interim consulting leader, joined the team, bringing expertise across accounting, finance, risk management, governance, and human capital.

For ZRG, delivering top-level interim talent is just another way to turn the challenges of the coronavirus crisis into opportunities. “There will be some systemic changes that come out of what we’ve experienced over the past year and a half, and I think the willingness to look at different ways to solve senior-level talent problems through on-demand solutions like interim is going to increase,” said Mr. Hartmann.

In the PE world in particular, every month is like a year in terms or urgency in getting portfolio companies running at maximum capacity. And that means getting the right talent in place, fast. Having to wait for three, four or five months for leadership resources to address projects is simply insufficient for this sector. “We do 50 to 60 CFO searches a year right now,” Mr. Hartmann said. “Doing interim is a natural extension of that and will support not only the gap between when the client gets a permanent placement in CFO, but also the support the CFO needs to execute on their mandates.”

What the future holds for ZRG remains an open question. What is certain, however, is that the days ahead will surely bring another purchase – perhaps Boardwalk or Park Place – followed over time by another, and another.

For private equity-backed firms, acquisitions tend not to be one-off deals; in truth, PE funders perpetually want to know what’s next. “When you head into the private equity world there’s no time that you can pause and say we’re happy at $100 million in revenues, and that’s the perfect size,” said Mr. Hartmann. “You do get that pressure to grow. But for our management team, we all signed up for that. We’re excited that we’ve got financial backers that want to support our growth vision. We’re aligned with our PE partners, and with our board. Everybody’s on the same exact page.”

Related: ZRG Acquires Sucherman Group

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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