Driving Growth: Strategies for Maximizing Equity Value in Search Firms

June 26, 2023 – In today’s fiercely competitive executive recruiting market, maximizing equity value is a critical factor for success. Recognizing this, private equity firms have strategically invested in numerous executive search firms in recent years.

“Search firms are indeed good investments considering the critical role they play in sourcing top talent for successful companies,” said Eric Walczykowski, CEO of Bespoke Partners. “Their value lies in their ability to identify and attract high-quality candidates, which is crucial for building and sustaining a competitive advantage. When evaluating search firms as investments, it is important to look for those with a unique market position, meaning they have a distinctive offering or specialized expertise. A strong and loyal customer base indicates the firm’s ability to consistently deliver value, while a repeatable business model ensures predictable and recurring revenue. By investing in search firms with these qualities, investors can position themselves to benefit from the ongoing demand for talent acquisition services.”

To assess and maximize equity value in search firms as an investment, Mr. Walczykowski says that it starts with selecting a firm that has a unique niche, a strong and defendable position in the market, and a repeatable revenue offering. “Once invested, it is essential to put in place a strong executive management team that can drive growth, maintain client relationships, and execute strategic initiatives effectively,” he said. “Additionally, implementing scalable processes within the firm ensures operational efficiency and the ability to handle increased demand. By focusing on these aspects, investors can assess and enhance the equity value of search firms, positioning them for long-term success and profitability.”

Negotiating and Structuring M&A Deals

When negotiating and structuring M&A deals in the search industry, it is crucial to start by valuing the deal based on comparable public companies and other M&A transactions. “Understanding the value drivers of the business is key to structuring a deal that aligns with those drivers,” Mr. Walczykowski said. “Typical M&A deals in this industry often involve a combination of upfront cash, rolled equity, and an earnout component. The earnout should be designed with incentives tied to specific milestones that directly contribute to driving value in the business. By utilizing comparables and aligning the deal structure with value drivers, negotiators can establish a fair and effective M&A agreement in the search sector.”

In addition, private equity investments are instrumental in driving sustainable growth and scalability in search firms through various means. “First, PE firms often bring a structured approach to operations, implementing efficient business processes and strategic frameworks that enhance productivity and performance,” Mr. Walczykowski said. “Secondly, they attract top management teams with expertise and experience in scaling businesses, leveraging their knowledge to drive growth initiatives and expand the firm’s market presence. Additionally, PE investors focus on execution, ensuring that strategic plans are effectively implemented and milestones are met. This combination of structured operations, top talent acquisition, and execution focus helps search firms achieve sustainable growth and scalability, positioning them for long-term success in a competitive industry.”

Webinar

Tomorrow Cody Crook, managing director at Hunt Scanlon Ventures, will be joined by an esteemed panel of industry experts including Mr. Walczykowski; Ravi Sarin, founding partner and co-head of AEA Growth; and Andrew Kelleher, director of business development at G2 Capital Advisors, to delve into the intricate process of assessing executive search firms for investment and shed light on the strategies that drive sustainable growth for search firm founders. Together, they will reveal the proven approaches employed by top dealmakers in the industry to unlock the true value of executive search firms. Join us for this exclusive webinar as we navigate the dynamic landscape of the executive search market, armed with the expertise and knowledge shared by industry leaders.

Free registration … Click here to sign up!

Speakers

Cody Crook is a managing director at Hunt Scanlon Ventures. Reporting directly to the firm’s co-CEOs, he is responsible for co-managing the firm’s investment portfolio, which includes executive search, talent acquisition, private equity, and investment firms. Leading the investment team, Mr. Crook spearheads all fund transactions and maintains portfolio developments. He is also responsible for sourcing, managing and monitoring investments and working with external portfolio managers, analysts and investors on active and prospective transactions. Mr. Crook started his career in recruiting and later joined Accenture as a business strategy manager where he developed organizational and operating models and conducted M&A commercial due diligence for Fortune 500 companies. Following Accenture, he served as head of strategy and operations for Hirewell, where he built a modern recruiting tech ecosystem and led multiple acquisitions.

Ravi Sarin is co-head and founding partner of AEA Growth and a member of the AEA Growth Investment Committee. At AEA Growth, he co-leads the overall strategy and direction of the firm, in addition to leading deal teams focused on the sourcing, evaluation, and management of the firm’s portfolio companies. Prior to AEA Growth, Mr. Sarin was the founder and managing partner of ROCA Partners, a growth equity investment firm focused on tech-enabled services and healthcare services companies. Previously, he was a principal in the private equity group at Ares Management. At Ares, Mr. Sarin helped lead investments in healthcare services, retail, and gaming, lodging & leisure among a few other sectors. Prior to Ares, he was a private equity investor at Bain Capital and a consultant at Bain & Company.

Eric Walczykowski serves as chief executive officer of Bespoke Partners. He is passionate about building high-performing teams that value doing their best, working together, overcoming adversity and learning. As a proven growth executive, Mr. Walczykowski has served as CEO, president, board member, investor and advisor for technology companies that achieved over $4.5 billion in successful exits. He brings to Bespoke Partners significant professional services experience from Deloitte and Andersen, as well as the high-growth client executive perspective for private equity-backed technology companies.

Andrew Keleher is director, business development at G2 Capital Advisors. Mr. Keleher builds fundamental relationships with clients and prospective clients in the pursuit of maximizing their long-term value and growth potential. Additionally, he plays a vital role in supporting transaction execution for both buy-side and sell-side engagements. Prior to joining G2 Capital Advisors, Mr. Keleher worked for Brighton House Associates (BHA), where he supported alternative asset managers with the development of strategic marketing initiatives to promote asset raising. Earlier in his career, he was a consultant at Automatic Data Processing (ADP) in Connecticut.

Attendance is free. To learn more and register to attend, click here!

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