December 17, 2018 – ZRG Partners, one of the fastest growing global boutique executive search firms, will soon announce the completion of a recapitalization with RFE Investment Partners, a lower middle-market private equity firm with a long history of investing in growth companies.
Rochelle Park, NJ-based ZRG’s current capital partner, Northcreek Mezzanine, is exiting the investment after four years. During this period, ZRG experienced a compound annual growth rate exceeding 38 percent and nearly doubled its number of offices from 13 to 22 around the world.
New York City-based investment bank Jordan, Edmiston Group Inc. (JEGI) is representing ZRG Partners in the transaction. Berkowitz, Trager & Trager is providing legal counsel to ZRG. Terms of the transaction have not been disclosed.
“We are excited about the next chapters of growth for ZRG as we continue our ascent to becoming an even more significant player in the global executive search market and broadening our offering to other areas of human capital services,” said ZRG CEO Larry Hartmann. “Our data-driven approach to human capital and our commitment to delivering seamless services around the globe with our highly collaborative team have been pillars in our growth strategy.”
Placing Big Bets on Talent
Mr. Hartmann said he is looking forward to continuing his firm’s growth with an investor “that has significant capital to invest behind our proven core growth strategy in tandem with looking at strategic acquisitions to broaden our talent offerings.”
Michael Rubel, managing director at RFE Investment Partners, said his firm is convinced that the human capital services market is ripe for disruption – and fresh thinking. “We are convinced that ZRG Partners is approaching the market with the right blend of experience, leadership and disruptive technology which clearly is resonating with clients who want to acquire top talent globally,” he said. “We also believe that our firm is uniquely positioned to assist Larry and the ZRG team in expanding ZRG’s service offerings and helping fulfill their vision as a significant provider of human capital services through continued hiring, key acquisitions and add-on investments.”
Aside from the big-branded executive recruiters, all of whom devote significant time and manpower to talent acquisition initiatives throughout the PE space, a number boutique search firms are working alongside these investment brands to provide talent up and down the functional scale.
Following that demand, London-headquartered executive search firm TritonExec has expanded its private equity practice into the U.S. by opening new offices in Atlanta and New York. The U.S. expansion is being led by partner Abe Doctor. Not surprisingly, the firm noted that its private equity practice has been the fastest growing segment of TritonExec’s business.
Scott A. Scanlon, founding chairman and CEO of Hunt Scanlon Media in Greenwich, Conn, said that venture capital and private equity firms have been circling the recruiting business. “What’s caught their eye are two converging leverage points in business: disruption and innovation,” he said. “Both shifts require skilled people and senior leaders to oversee them. It has effectively put search firms in the crosshairs of big growth and expansion as far as the eye can see – and that means big payouts to investors savvy enough to be placing bets on the talent business.”
The landscape for top talent has grown exceedingly competitive in recent years. “Companies want experienced people – and increasingly they are looking not only to their C-suite but to top flight management teams to drive the top line, find operating efficiencies, and transform culture,” said Mr. Scanlon. He said that any number of other search firms are ripe for investment. Why? “We see an entirely new landscape emerging within executive search and the talent solutions space.”
Talent solutions partners, said Mr. Scanlon, have come of age and more often than not they are impacting long-term organizational value. “People, of course, are the strategic differentiator for organizations undergoing transformational change,” he noted. “And executive recruiters are in the right place at the right time to help effect that change through talent acquisition.”
RFE Investment Partners, based in New Canaan, Conn, has upwards of 35 years of experience investing in growth companies and partnering with strong management teams in the lower middle market. The firm invests in businesses with initial enterprise values of $20 million to $100 million.
JEGI is a provider of independent investment banking services for media, information, marketing services and related technologies. Since 1987, JEGI has completed nearly 650 high profile M&A transactions for global and emerging companies, entrepreneurial owners, and private equity and venture capital funds.
ZRG Partners, founded in 1999, is a progressive mid-sized global executive search firm that uses a proven, data-driven approach. The firm finds leaders across a broad spectrum of business markets, including aerospace, consumer, education, healthcare services and solutions, industrial, life sciences, non-profit, private equity and venture capital, and technology.
Alexander Mann Solutions to be Acquired by OMERS Private Equity for $1.1 Billion
OMERS Private Equity, the private equity investment arm of Ontario-headquartered OMERS, has entered into an agreement with New Mountain Capital to acquire Alexander Mann Solutions, a London-based talent acquisition and management services firm, for $1.1 billion.
OMERS will support the Alexander Mann Solutions management team and employees in deepening and expanding its sectorial and geographic focus, and invest in technology to further develop its value proposition for both new and prospective clients. The private equity firm “will also support Alexander Mann Solutions in driving consolidation in what remains a large but still fragmented market,” said OMERS. Whether this means more acquisitions is unclear.
ZRG has 59 senior consultants working from 22 offices worldwide. This year, the firm’s revenues are expected to hit $36.5 million, according to Hunt Scanlon estimates, ending the year at a $40 million run rate. The firm plans to exceed $50 million in total search revenues next year.
Mr. Hartmann recently sat down with Hunt Scanlon Media to discuss this deal and his firm’s plans moving forward. Following are excerpts from that interview.
Larry, you raised funds four years ago. Why are you raising more capital now?
The good news is that our strategy and plans are working and we have further validated our growth strategy. When we did our first fundraising four years ago, part of that was to buy out an equity partner and we had funds to focus on growth. Since then, we have grown from $10 million in revenues to ending this year, four years later, at a $40 million annual run rate. Now, we need a bigger equity partner to continue our growth and this is a great time to provide a successful exit to our equity investors, Northcreek, and welcome in RFE Investments to our company.
What’s next? Where is the firm going?
We believe the market is telling us that there is room for a viable, global competitor to the Big Five. Our mission to create the biggest search and talent management firm outside of these legacy brands that will generate $125 million a year globally in executive search revenues but also, along the way, diversifying the revenue streams to continue to address innovation and client demand in adjacent areas that make sense. We think this is a right-sized goal that will allow us to continue to deliver amazing search with our data-driven platform without hitting market saturation levels that can hinder client satisfaction.
“We believe the market is telling us that there is room for a viable, global competitor to the Big Five.”
What sort of areas will you be pursuing in the future?
Think of a right-sized, client-focused Korn Ferry. In some ways, that is our vision. In my opinion, they have it right in many ways, but they have grown too large to best service the executive search side. It is clear that billing $500 million to $1 billion a year, as the Big Five are doing, is not in the best interests of clients. The reality is, at that level, these legacy search firms are off limits for recruiting to as much as 30 to 40 percent of an industry. This is creating real issues with landing the right talent for clients. So, we believe growing to the optimized size, having sufficient scale and global coverage is important, but we also think that there is a size that is too large to make sense for clients.
Describe what your platform might look like moving forward.
For us, we will have executive search as the anchor part of our business but we will also continue to invest and acquire in adjacencies that make sense. We plan to look closer at areas such as senior-level interim as a target area. We also see room to expand our middle management professional search brand and also consider acquiring technology-driven solutions that can enhance our client deliverables. Executive coaching, onboarding and culture fit products are areas we will continue to pursue. We envision building a diversified talent solutions provider focused on solving high-end talent problems for our clients.
Leadership Crisis Unfolding at Private Equity Firms
According to a coming research report from Hunt Scanlon Media, the private equity sector can expect to see an expanding bidding war for top talent. Driving the trend: persistent global talent shortages across the C-suite. Nearly every industry and function is affected, including finance, healthcare and biotech, digital and technology, among others.
What is the strategy for growth? And do you have any concerns?
Culture is king, and you have to be careful in terms of how fast you go and what types of platforms you acquire. We have seen search firms crash and burn when revenue growth is the only focus. We have built an amazingly collegial culture where our managing directors thrive in co-managing projects and actually enjoy working together focused on the client. So, first off, we will continue to hire and do team lift-outs that fit with our platform. That has driven business the past five years with 10 to 15 new managing directors each year. Our platform is appealing to executive search professionals from large firms as well as those who might be in a boutique today, as we have a formulaic payout model, not a black box.
That sounds straightforward.
Well, as simple as that sounds, many search professionals are irked at the uncertainty that bonus time can bring and are now beginning to see bonus dollars deferred and tied up into long-term committed payouts. This is not what they signed up for and these changes are being forced upon them as the public firms fight to provide the right shareholder return by creatively deferring payouts to billers to hit numbers. Along with continued organic growth, we now have a significant capital commitment from our investors to pursue strategic acquisitions in executive search and adjacent areas that make sense. This could be to help us grow or supplement new market verticals or to supplement our geographic expansion. While our footprint globally is strong, we are looking at a few strategic geographic areas that would make sense. We are excited to partner with RFE Investments as we look at accelerating growth in some of the new market areas, where acquisitions might be the best entry point to consider.
What keeps you up at night?
We have certainly experienced a bull market for many years now in search. We are not naïve to think this will continue without change and we appear to be knocking on the door of a slowdown. While this keeps management on our toes, we are actually quite positive that with fresh capital we can take advantage of a downturn to further speed up our growth. Additionally, having a deeper balance sheet will allow us to better weather any market corrections that might impact revenue levels. While none of us want the downturn, we are ready and have our playbook opened to navigate through it and take advantage of our position through the cycles. The good thing about private equity vs. being public is you can think five years out and not worry so much about quarter-to-quarter results. I think this has hurt some of the legacy search firms as they are forced to make decisions that satisfy shareholders, but often don’t consider the employees or the clients as priorities. We think this capital structure gives us a competitive advantage through the cycle.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media