Spotlight: Growing Your Search Firm During Challenging Times
April 27, 2023 – Larry Hartmann is the CEO of ZRG Partners, a leading search firm backed by private equity firm RFE Investment Partners. He is a results-driven leader with a broad business background in executive search as well as in industry. As CEO, Mr. Hartmann is responsible for driving overall growth, client engagement and profitability of the firm. A key focus for him is engaging and recruiting top talent to join the firm as well as selectively pursuing additional acquisitions that fit the ZRG culture. He also leads the charge in continuing to innovate and enhance the firm’s data driven value proposition.
Mr. Hartmann recently sat down with Hunt Scanlon Media to discuss how ZRG has performed recently and how he plans to continuing to growing the firm in 2023.
Larry, how was 2022 for the firm and how are things looking now as we are well into 2023?
I think last year was probably the tale of two halves. The first half started very busy and then things started to change around the world events that were going on and some economic softening. We saw the second half slow down, and I think it’s more of a measured pace heading into the remainder of 2023. We have certainly seen it back off of the high watermarks that we saw in 2021 and 2022. However, there is still work going on. It’s just not quite the same levels in terms of the executive search side.
Are there areas that are busier for the firm?
Yes, ZRG is covering quite a few sectors. In general the middle market, private equity backed type businesses, are more active; private equity owned businesses are tending to not slow down their mandates where some of the big Fortune 500 type companies have had more hiring pauses or freezes. ZRG has been more active in middle market, but industry-wise, some markets remain strong. The sports market for us continues to be strong, and surprisingly industrials has stayed pretty steady, while consumer softened a bit. ZRG’s entertainment, media business has softened a bit. However, I think those are just the cyclical trends of what’s happening.
Can you provide a sense of the overall feel for the industry right now in terms of PE?
I think there’s a handful of firms that have seen the pathway to grow through bringing in outside capital. This is a positive as there are plenty of growth opportunities out there. But the other thing that’s happened is I think that boutique search firm owners over the last few years have realized that there are options to merge and sell their businesses and that they should be thinking about that years before they want to retire. What we have seen is just kind of a realization within the boutiques that if they’re ever going to do something, now’s a pretty good time to think about bolting on to a bigger platform. ZRG has had a lot more discussions on that front, around really nice businesses that have been around 20 years, 25 years, but they never really had a succession plan. It is hard to hand over a business to the people that work for them so they are looking for someone like a ZRG to come in and help give them a soft landing and an exit. That has been another trend we have seen.
Are there any dangers in the current macro environment out there that worry you?
It certainly feels like in the search business we have been in a recession for six months. Mathematically, if you look at revenues across the Big Five, the publicly reported ones, they are showing slowdown year-over-year, and we are seeing the same thing. In talking with other colleagues in the industry, that is generally what’s going on. It feels already like the slowdown of hiring has been anticipated, where companies know there’s a slowdown that we are in and could continue to be in for a while. Something like the bank crisis certainly is the latest factor that’s got a lot of industries now kind of thinking – it could affect the real estate market, it could affect the life science, early stage markets, really the tech market with Silicon Valley Bank. So there is some concern there, but there also becomes opportunity. One of our acquisitions, Seba, focuses in risk management and their phone’s been ringing off the hook. There are lots of need to look at the risk, infrastructure, and talent within the banking and financial system. With every crisis comes opportunity to retool your talent lineup. That’s happening now in banking.
ZRG had some more investment at end of last year. Where is that going to go?
As we look at a slowing down in the market, companies can take one or two approaches, and some of the big publics took the approach of large layoffs and one time write offs. If you look at the reports of Korn Ferry, they had a $50 million, one time charge, layoffs. ZRG took the approach that this is a great time to raise additional capital to acquire and grow, that it’s oftentimes easier to grow and to add great people and add great businesses when the market’s a little bit softer. In a pretty tough environment to raise capital, we brought in five new institutional investors and raised the commitment over $90 million. It is something that we are proud of and now we’ve got the opportunity to deploy that capital and in a slower market still be able to show growth through acquisition and hiring. That has been our strategy.
Continuing on with that strategy, has ZRG been looking for opportunities?
Yes, and I think even more so now. In the sense of our acquisition pipeline being large, the hunger to bring on great talent is even more pronounced. So for ZRG, you see a softening in revenues, it’s time to bring in more revenues through hiring and acquiring. Our answer to the slowdown is play offense. We will see how it all plays out over the next few years. We are hopeful that the downturn isn’t more than another 12 or 18 months, and that’s been traditionally the cycles we’ve all seen over the decades in business.
