Recruiting Sector Jumps 13.9 Percent, Driven by Tightening Talent Markets

May 10, 2019 – A constricting labor market with low unemployment means companies are struggling to find qualified talent. When the right people are found, the costs associated with hiring them are rising, making a lengthy onboarding process now the rule, not the exception. All of it is translating into big business for the nation’s Top 50 executive search firms.

According to recent statistics collected by Hunt Scanlon Media, this group collectively jumped nearly 14 percent this past year, continuing a dazzling run for headhunters. Total revenues for the Top 50, which employed almost 3,000 recruiters across their Americas offices, surpassed $3.8 billion – an all-time high.

True Search, which grew 43 percent in 2017, jumped a whopping 64 percent last year, catapulting its 43 U.S. consultants into the Hunt Scanlon Top 10 ranking for the first time. Along the way, it was crowned the fastest growing super boutique of the year. The boutiques, an influential powerhouse league of executive recruiters, once again powered the 50 leading talent providers to new highs, feeding off a thriving business environment and taking advantage of transitioning industries.

“Tech disruption is permeating virtually every industry,” said Brad Stadler, founder and managing partner of the No. 8 ranked talent provider. “Most companies now have a strong need for progressive talent from the technology world. Further, clients are looking for a partner that offers a comprehensive suite of talent sourcing and development solutions. We have capitalized on these trends by expeditiously building and developing a world class team of functional and domain experts to meet demand.”

Supply and Demand

That demand, report recruiters up and down the rankings list this year, has everything to do with helping clients find, assess, and hire high impact leaders who can drive enterprise value creation and growth. And that often takes new skills sets. Fully 60 percent of global executives in a recent McKinsey & Company survey expect that up to half of their organization’s workforce will need retraining or replacing within five years. An additional 28 percent of executives expect that more than half of their workforce will need retraining or replacing. More than one-third of the survey respondents said their organizations are unprepared to address the skill gaps they anticipate. What it means for recruiters is dizzying growth ahead.

While many sectors are in need of disruptive, high impact leaders – including healthcare, the life sciences, media & entertainment, sports and non-profit – none is more strapped for talent than private equity. That has made the PE sector now the chief driver of growth at recruitment firms across the U.S. Nearly every search firm has a hand in the business – and for some, like Hanold Associates – a growing percentage of business emanates from addressing talent demands for portfolio companies backed by some of the biggest private equity names in the business, including L Catterton, Apollo, Blackstone, KKR, TPG, Golden Gate Capital, Summit Partners, Towerbrook Capital and a host of others.

Building Strong Talent & Cultures

Jason Hanold, the firm’s founder, and his team of 11 search consultants focus on the human resources function exclusively, and that has given him a unique window into the supply and demand curve at a cross-section of companies around the country. “Overall market demand for HR leaders is elevated to an all-time high, and the private equity sector’s demand for these leaders is directly correlated,” said Mr. Hanold. “There are a few reasons for this: As the caliber of HR leaders continues to evolve, companies are investing in a contemporary HR leader earlier in their maturity cycle, and established companies are demanding more from their existing HR capability.”

The Chicago-based search firm grew 16 percent and reported revenues of $7.8 million. Some of the firm’s more recent top HR searches include those for Domino’s Pizza, Under Armour, the National Football League, Gucci, Live Nation Entertainment, Northwestern University, Electronic Arts, Fiat-Chrysler, Kohler, Marvin Companies, SC Johnson, eBay, Heinz, Fossil, Vail Resorts, Edward Jones, AbbVie, Carnival Corp., Google, Biogen, Allstate, Bridgestone, Silicon Valley Bank, T. Rowe Price, Wikimedia, Cargill, CNA Financial, Cummins, Tyson, Northwestern Memorial Healthcare, ClubCorp, and Nike, among others.

Mr. Hanold said the PE sector has come around to investing in the HR function differently than in the past. “While it used to focus the function on ripping out cost, there is now more focus on building high-performing teams, culturally integrating recent acquisitions, and driving higher levels of talent engagement. Companies with strong talent and cultures simply perform better, and in return, become a more valuable investment,” he said.

Delivering Value, Not Just People

“The biggest result of the growing influence of private equity on the recruiting sector is that search consultants are being pushed to deliver value, not just people,” said Scott A. Scanlon, CEO of Hunt Scanlon Media. “PE leaders are sophisticated buyers of talent solutions services and they demand a much more full-on, holistic approach to talent management. In so many ways, we see the search business coming full circle, realigning much more closely to the management consulting field from where it all started six decades ago.”

“If you were to look at both private equity firms and public companies and you identified the ones that have outsized returns, I suspect the returns would have been driven far more by the people than by the actual products or services. It stands to reason that if you’re trying to optimize your investment, you need to optimize your people.”

For Korn Ferry, the biggest operator in the talent sector, private equity has given it the ability to showcase its expanding focus on proactively managing people and organizational risks – a far cry from simply finding, assessing and hiring talent – indeed the very business on which it was founded 50 years ago. The firm now draws on its knowledge in leadership and organizational consulting, global reach, and deep industry and functional expertise, all supported by an army of 8,000.

Along with that, Korn Ferry brings predictive research-based intellectual property across key disciplines, including executive assessment, top-team composition & effectiveness, organization design and restructuring, CEO & executive leadership development, succession, and talent management. As a result, its consultants play an integral part in ensuring value-creating transactions for clients around the world. This expanding platform helped the talent leader break the billion dollar mark in Americas’ revenue for the first time ever in 2018.

The Talent Age

Alan Guarino, vice chairman in the CEO and board services practice at Korn Ferry, says that business, and PE in particular, has entered what he calls “the talent age,” a new day in which technology no longer trumps talent and talent is fast becoming the key to success. “If you were to look at both private equity firms and public companies and you identified the ones that have outsized returns, I suspect the returns would have been driven far more by the people than by the actual products or services,” said Mr. Guarino. “It stands to reason that if you’re trying to optimize your investment, you need to optimize your people.”

To do that, Mr. Guarino speaks of companies needing to bring an integrated approach to their efforts to maximize value. “A holistic approach means strategic human resources, not transactional human resources,” he said, in a nod back to the sector’s true consulting roots.

Turbocharged Growth

Growth among the Top 50-ranked search players in 2018 was broad and deep. By most measures, it was another year of exceptional expansion for executive recruiters plying their trade across the C-suite. A glance down the rankings table shows, for the most part, an extraordinary story of expansion. Among this group, 44 firms showed a percent increase. Of those, 40 firms reported double digit growth – with 23 reporting growth rates of 20 percent or higher.

Odgers Berndtson, a global firm that has been expanding rapidly in the U.S. under CEO Steve Potter, reported $69 million in Americas’ revenue, with a growth rate of 35 percent. “We were very fortunate to have had an excellent year,” said Mr. Potter. “First, we benefitted from hiring some great partners and principals, and we continued to increase our geographic reach and deepen our expertise. But, this year in particular, our C-suite clients turned to us to provide a broader suite of leadership consulting services, which is a direct result of the high level of consultative talent we employee.”

Like many Top 50 rivals, while executive search remains Odgers’ core business, the firm works almost non-stop with clients to help them develop, what Mr. Potter calls, “far looking human capital strategies” to ensure that their leadership teams are well-equipped for the future. Like True Search, this is the first appearance of Odgers Berndtson in the Hunt Scanlon Top 10 ranking.

Options Group, another top player serving the financial services markets, also enjoyed a stellar year, posting $43 million in Americas’ revenue, an 18 percent gain. The firm employees 90, primarily out of its offices in New York City.

“This has been a record time of growth for Options Group as well as the executive search industry as a whole,” said CEO Mike Karp. “The world has experienced sustained and robust economic growth for close to a decade, and that has turbocharged the necessity to search for top talent.”

The U.S., in particular, he noted has had remarkable and seemingly accelerating growth, leading the world business boom. “On top of that,” he said, “the economy has soaked up inter-employed capital and tightened the markets for top talent significantly. In short, the executive search industry has been hitting on all cylinders, and this has lifted growth rates across our industry.”

To help manage its own growth, Options Group recently appointed David Korn to serve as head of EMEA and as global chief operating officer. Mr. Korn, who sits on the firm’s operating committee and leads his efforts from London, has spent an entire professional career with the firm, having joined in 1999. His duties include day to day management, strategic planning, and corporate development. And like Mr. Karp, Mr. Korn is actively involved in deal origination and executing executive search and competitive intelligence assignments for investments banks, hedge funds, asset managers and alternative investment firms.

“Our success is gratifying, but in truth, it is also well-earned and has been the result of the core growth of strategic initiatives we have had in place for several years now,” added Mr. Karp.

Increased Momentum

JM Search, a well-known boutique that has exclusively served the private equity sector for four decades, reported $29 million in revenues, a record year for the firm. It grew 33 percent. John C. Marshall, CEO, called 2018 “exceptional,” attributing the firm’s expansion “to the dedication of all our employees and their continued desire in knowing that great search execution and delivery is the most significant factor in reaching your financial goals.” JM Search employs 50 consultants and associates. 2019, he said, is off to a great start. “We see increased momentum across the board.”

ZRG Partners, another search firm that has enjoyed a solid run, reported $37 million in revenues. Its business grew by 50 percent. The firm now has 52 consultants and associates. “This was a great year for ZRG, and we expect the same for 2019 based on the strong start we showed in Q1,” said CEO Larry Hartmann. “Our continued growth can be, and always has been, attributed to one thing: our people. We have been very fortunate to acquire very talented and experienced managing directors in the past year and that has been a key contributor for us.” A number of the firm’s consultants point to a collaborative culture, business platform, support network and infrastructure as key enablers that allow everyone at the firm to operate at peak performance. “Nothing beats a fully engaged team,” said one consultant,

Feeling Bullish

Leaders of the Top 50 all had one thing in common: optimism. A vast majority expect increases to continue well through 2019. According to participants in the Hunt Scanlon annual survey, 76 percent of recruiting firms said they met or exceeded their goals in 2018. A full 81 percent expect to bring in more revenue this year than last, while 86 percent expect higher profit margins. Optimism, it seems, reigns across the sector despite growing concerns and emerging challenges related to automation, macroeconomics and politics.

Hunt Scanlon surveyed recruitment leaders on their use of AI, what some now call the 800 pound gorilla in the room. Hunt Scanlon found that U.S.-based recruiting providers as well as the global search outfits were anticipating increases in their operating budgets, notably to cover technology investments. A full majority, 56 percent, said they found AI to be a helpful tool; 10 percent said it was a threat to their business, while 18 percent said it was both a helpful tool and a threat. “One thing is certain,” said Mr. Scanlon. “Search providers must continue to embrace digital transformation to drive and accelerate the business growth they have now come to expect. We are just at the cusp of realizing the full potential of AI and predictive hiring. No one must be complacent.”

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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