Valuing a recruitment agency

Valuing a recruitment agency

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I am looking at a valuation for a well established recruitment agency on various bases. If one was to use fee income as a base what multiple would anyone recommend

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By petersaxton
14th Feb 2011 18:58

Why fees? I'd recommend profits.

I wouldn't recommend basing price on fees.

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By jbayman
14th Feb 2011 20:09

valuing a recruitment company

I agree but this is a fait accompli.

I am looking at an existing valuation that has been done on a multiple of 2.75 fee income and I wanted to see if that was the norm for that sector.

I am also looking at an adjusted profit based valuation to compare.

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By Steve Holloway
15th Feb 2011 09:07

Fait a commpli or not ...

you won't help your client if you use the wrong basis for a valuation. I have been envolved with the sale of three recruitment agencies over the last 5 years and none have been done as a multiple of fees. There are so many variables that will affect the valuation -- what type of fee income, temps, perms, margin from larger provider, split fees? What type of agency -- high street, internet, specialist, generalist. What type of clients -- sole agency deals, partner, punt and hope? How many and what type of staff -- hard sales,admin, embedded with customer? Where are they based ... growth area or declining market ...... etc etc etc etc

I agree with previous post .... profits are what is important and more importantly there sustainability in what is a very up and down market at the best of times. I cannot believe that now is a good time to get a good price either. There may be buyers out there but they will taking on risk with the economy and will be paying bottom dollar.

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By ourtone
15th Feb 2011 10:41

Hmm...

I agree that for the majority of businesses a multiple of adjusted profits (adjusted for directors salaries/benefits, replacement costs and other exceptional items) is the best way to value a business.  I would normally take the average of the last 3 years results and add on the projected balances for the next financial year, sometimes two years depending on how concrete the sales revenues are.

However, it is common in some sectors to use different methods, software development is one, where the valuation is often derived from annual maintenance income.  Recruitment agencies also, sometimes, work differently.  It is sometimes of great interest to competiting agencies the value of temporary placement revenues the theory being they'll bolt this onto their own business and infrastructure.  So the fixed overheads ad net trading profits are far less important as their primary objective is acquiring market share.

I've seen recruitment agencies valued on this type of basis with multiples anywhere between 1 and 5 with a higher multiple given to revenues generating more profits on a consistent basis.

At the end of the day its horses for courses and it depends on the reason for the valuation as the old saying "a business is only worth what someone is willing to pay for it" wins everytime. 

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Nichola Ross Martin
By Nichola Ross Martin
15th Feb 2011 18:22

Lots of variations in practice

Depends on the how the agency runs, service sector, location how many directors and what sort of bonuses. I have seen all sort of mixtures. I would not use a multiple of fees, but an earnings basis, if big enough I would do some market comparisons.

Virtual tax support for accountants: www.rossmartin.co.uk

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By jbayman
17th Feb 2011 20:45

Recruitment consultancy Valuation

Thanks for your replies

The valuation was not for sale/purchase but for shareholder protection insurance. We were having problems with the insurance company on agreeing a valuation. The clients accountants had used a fee base which the insurers were not happy with as they tend to use a straight multiple of net profit. I was interested if a fee basis was the norm for this sector. We reworked the figures on NPBT with directors emoluments etc added back plus the NAV and we seem to have come to a compromise.

Thanks for your assistance

 

 

 

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By Hamid khan
27th Apr 2014 06:42

Have anyone worked on valuation a NEW recruitment business ?
The company has just acquired a recruitment license and wants an operator to join as shareholder sharing equally. Does the license carry any value the seller can demand?

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