Focus on inorganic growth
Ernst Zellner, founder and owner of ZELLNER Personal Lösungen GmbH, owner of TPS Personalservice and acquirer of other companies, reveals his personal recipe for successful M&A transactions in the personnel services sector.
It’s the end of November 2024 and once again owner and Managing Director Ernst Zellner is acquiring two new personnel service companies. And that after less than three years since the last acquisition with TPS Personalservice went well.
This year, the three-time owner is also pleased about the successful takeover of a German GmbH in order to support new employees and customers with the usual reliability and quality. In view of the rapid pace of inorganic growth, Zellner analyzes the success factors for M&A deals in the personnel services industry.
Success factors for M&A transactions in the HR sector
Zellner, who owns several companies, casually formulates five essential points for the acquisition and integration of a company: firstly, a look at the company portfolio and the associated question of whether the portfolio fits into the existing company and the future strategy at all. Keyword: portfolio expansion or deepening.
A second very important soft factor is the corporate culture. The more similar the culture, the easier the integration into the existing company will be. The third step is to look at the organization. It is essential to take a close look at the existing processes and systems. This will determine how complex it is likely to be to harmonize processes and what overlaps and potential synergy effects exist. The location and pricing policy should also not be neglected.
Analyze, analyze, analyze
Strategic considerations are at the beginning of every M&A transaction. During a classic due diligence process, the company to be acquired presents itself primarily in terms of figures, data and facts. It is customary for the seller to dress up his bride and describe the future bride as wealthy as possible. It is worth taking a closer look at the investment history of recent years, not just the current financial year.
Even if a professional and careful examination and analysis of the company in terms of monetary value and potential is an absolute prerequisite for an M&A deal, this is not sufficient for an all-encompassing consideration and decision-making process.
“Informal structures, which are part of every organizational culture, can hardly be “uncovered” in an official M&A process,” says Zellner. In retrospect, however, they can have a major influence on the success or failure of the merger and the subsequent integration.
A pig in a poke and a willingness to take risks
It is also important to take a close look at the “key person risk” – in other words, what influence do the organization’s key players have on the company’s success rate? If the necessary knowledge and sensitivity is lacking at this point, this can lead to collateral damage under certain circumstances.
“Sometimes it’s like buying a pig in a poke, for example when there is no opportunity to get to know the workforce,” explains the company boss.
In this scenario, there is a risk that key positions will be lost. The company has been acquired at too high a price as a result. Gaining a picture of who the most influential people are is therefore the supreme discipline in the M&A process in order to retain key positions in the company.
In the case of larger share deals, the buyer usually only has the opportunity to see the big picture authentically, on site and with the workforce after the contract has been awarded. It is therefore all the more important to rely on stories, observations and listening. Showing a willingness to take risks accompanies every M&A project – entrepreneurs who do not take risks will not get anywhere. For smaller deals, it is easier to get a picture of the workforce in advance.
Timing and financing for an M&A transaction
In entrepreneurship, there is no such thing as 100% certainty – neither the right time nor the right decision. If a company realizes that it will be difficult to make progress on its own, this is an indication of inorganic growth. Agile entrepreneurship is characterized by a willingness to seize opportunities and take risks. The market is currently also confronted with a generational change: Companies are increasingly looking for a successor.
Financing on this scale is normally invested for the longer term. This is also the advice. A possible alternative, which is associated with bureaucracy but good interest rates, is the AWS. This can also be used for high cash holdings, and is particularly advisable in a high-interest phase. During low-interest phases, partial or external financing is the method of choice.
Time spent in the M&A process
Depending on the size and type of deal, it is worth allowing between three and at least six months. With a share deal, as opposed to an asset deal, a company usually makes a larger acquisition. In this type of purchase, it is important to take a close look at the valuation method – in addition to the EBIT method (capitalized earnings value method), there are also the net asset value, average value and market value methods as well as the discounted cash flow. This process is accompanied by experienced tax advisors who provide the company with good advice. Lawyers are also involved on both sides, who naturally represent the interests of each party.
“This process can be very tough and after careful consideration it is worth choosing to talk directly to the seller. Perseverance and negotiating skills are very helpful here “, confirms owner Zellner.
Find a bride or successor
If a company is facing the challenge of an acquisition or company succession, it is worth hiring a specialized consulting firm. The company’s own vigilance for the industry or alert employees, who think along with the company, also provide insider information in good time. News about planned company sales and successor searches reach the key decision-makers directly in this way. The advantage of personal networks is, on the one hand, that your own employees are often better able to assess which companies are a good fit for you. On the other hand, this gives potential sellers an advantage in terms of trust. The reputation that your own company has among industry representatives also plays a major role here.
“Especially when life’s work is passed on, as is often the case with owner-managed companies, the trust factor plays a greater role than purely monetary aspects,” explains Ernst Zellner.
Ultimately, the owner wants to know that his work and his existing employees are in good hands before he can move on to other things with a clear conscience. Owners who are facing the process of company succession or sale are therefore well advised to seek good advice.
Are you looking for a successor for your personnel services company?
