Ep 19: What Owners Need to Know About Buying and Selling RPO Business

This episode of Time to Hire explores the world of mergers and acquisitions (M&A) in the Recruitment Process Outsourcing (RPO) industry. Moderated by Joe Marino, Chief Growth Officer at Hueman and a member of the RPO Association Advisory Board, a panel of industry leaders share insights on critical aspects of the M&A process from both the buying and selling perspectives. Key topics include financial targets, deal structures, and navigating the acquisition journey. The episode was originally recorded during the 2024 RPOA Annual Conference in Chicago on October 7, 2024.

Guests:
Bill Filip, Founder & Managing Director, Delancy Partners
Matt Corbett, Founder and President, ZRG Embedded Recruiting
Dwight Cooper, Chairman at Hueman People Solutions

Mark your calendar for the 2025 RPO Association annual conference in Chicago on September 28-30. The RPOA Conference is the ultimate gathering for top RPO executives, service delivery leaders, advisors, and technology innovators. 

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Chapters

• 2:14 Overview of M&A Stages
• 12:25 Advice on M&A Preparation
• 18:19 Value Creation in RPO
• 22:51 Valuation Insights
• 28:19 Differences Between Private Equity and Strategic Buyers
• 33:54 Communicating M&A to the Team
• 38:01 Messaging Change to the Organization

Transcript

Hello everyone, and welcome to another episode of time to hire from the Recruitment Process Outsourcing Association. I'm your host. Lamees Abourahma, today I'm excited to dive into an illuminating panel discussion from the 2024 RPO a annual conference focusing on the dynamic world of mergers and acquisition in RPO, M and A's, as they're commonly known, are increasingly shaping the landscape of Recruitment Process Outsourcing, and this episode is packed with insights straight from industry leaders who have successfully navigated this journey, moderated by Joe Marino, Chief Revenue Officer at human and a member of the RPO a Advisory Board, however, panel discusses critical aspects of the MNA process from both the buying and selling perspectives. You'll hear about essential considerations like financial targets, deal structures, and what it truly means to go through an acquisition, whether you are an RPO leader, contemplating a sale, looking to make an acquisition, or just eager to understand the M and a landscape and recruitment. This episode offers the knowledge and insights to demystify this business practice before we jump in. Mark your calendar for the 2025 RPO, a annual conference in Chicago on September 28 through the 30th. It's an event you won't want to miss. Now let's meet our panelists and explore this enlightening discussion on mergers and acquisition in RPO.

Okay, so I'll actually let our panelists introduce themselves, if you guys can share your name the company you're with, and then little bit about your background on the specifically around the M and a front So Matt, I'll let you go first, and then Dwight and then bill.

Hi everyone. Matt Corbett, I'm with CRG partners. I'm based in Boston. So story, been in search talent my entire career. I'm 53 so started London, then went to Cleveland, Ohio, then went to Boston, then Silicon Valley, now back in Boston, first company grew it to about 500 people, sold it to a public company, then did executive search for 10 years that took me to Google, then started an RPO business out of some experience we'd had at Google, and it was acquired by DRG 18 months ago.

Dwight Cooper, human people, solutions, I started a business 28 years ago. It's travel nurse business, and ran it for 20 years before selling it to private equity in 2016 had Joe Marino and Bill batwell along for the ride, ride with me, and still rolling with him today. But we, we had a little RPO business embedded in that travel nurse business that we spun out and we rebranded as human people solutions in 2016 and so, you know, anytime you're a founder and you start a business, I was in my 20s, we sort of 20s, we sort of spent 10 years of that first business trying to figure out how to run a business, making a lot of mistakes, stumbling. We always tell the story, we invested $10,000 that was our initial seed capital in that business, and grew it to 100 million. But that first 10 year was really hard, and that second 10 years, we sort of figured it out a little bit and had it going. And so we, when we sold the business of private equity, I was so afraid to go to work for private equity one and number two, to wake up the next day and not work with my team anymore that I kept the RPO business. That's how we went to market. And so we were able to have a great five year run in at human growing it from a small business that was losing money to, you know, north of 50 million in annual revenue. And then we sold that business to shore capital, which is literally in the building right next door. And so they own 51% of the business. The management team owns 49% of that business. And I moved to the board, and I'm now focused on M and A, and so one last postscript, am I not afraid to work for private equity? I've been working for private equity now for the last six years. And so I'm an operating partner for a couple of private equity groups. I sit on five private equity back boards today, including human people solutions. And so finally, Married for 31 years with 24 year old daughter and 21 year old boy, girl, twins live in Ponte Vedra Beach, Florida,

and unlike the other two panelists, I am not an operator. My name is Bill Phillip. I've been more in advisory roles for in working with HR companies for about 20. Eight years now, initially I was on the sell side investment banking. And then I co founded Baird capital, which is affiliated with Robert W. Baird, very active in HR, helped build that practice. So we were doing service models, outsourcing models, pure tech models. And then about a dozen years ago, I founded Delancey Street partners, and we still maintain that kind of core focus on on HR and other verticals. But my my focus is really tech enabled businesses with a real strong focus on HR, I fell in love with one of my early investments at Baird was this little company called pin stripe that then changed over and changed her name to clo talent, so you guys know them. So I was the first institutional backer in Sue marks. If you know her,

great. Thank you. I'll share a little bit about my background. So started in M and A in 2001 so 23 years ago, sort of a varied background that initial, my initial exposure was on the IPO side. So help take an organization public have gone through large transactions, sort of 300 million plus transactions, smaller transactions in that, sort of 50 to 100 million. And then also, sort of tuck ins where your you know your valuation is a million dollars or less. Couple of employees don't really know what you're getting. So I have sort of a wide variety from an M and A perspective. The whole idea, when Lamees and I were talking about having this panel, it's to ground everyone in sort of the basics of M and A so everyone's going to have a different level of experience. So if you feel like we're talking about something that's a little bit below your level, stick with us, because we'll get to some more detailed ones, and we may have some other webinars where we have specific discussions around specific topics within m a with that said, I will, I'll talk through the from a seller's perspective, sort of 4m and A stages that you may be as being, if you're a seller, right? You may be looking at you're you're not for sale, simple, right? Or you're actively pursuing a sale, and then you sort of have the two gray areas in between, where if someone today comes up to you, you may talk to them about it, maybe you're opportunistic, or you're sort of on the fence, and you may be thinking about going to market in a year or so. And so I want to I share those perspectives with you, or share those four stages with you. If you're in the second, third or the fourth, you really should have a plan, and that plan may not be to go to market for a couple of years, but you should have a plan on what you're actually trying to achieve from a sales perspective. So I'll talk you through some of the stages, sort of eight different sorry, I know this mic is touchy, eight different stages. So you think about your objective. If you own a business, or you're part of a business, talk with your team about what are you trying to achieve in a sale, right? Are you looking to actually exit and create the most value at the close of that process, meaning you want to have the most cash and cash in the bank, and you're walking away from the business, maybe right away or within a year. Or conversely, you want to roll a lot of your equity and you want to stay in the business because you're not able to grow the business with your existing team. Maybe you're short on capital, maybe cash flow isn't where you want it to be, right? And those are sort of two extremes you may be looking at in a minority investment, right? So minority Not, not controlling ownership, but there's a lot of stipulations and regulations that sort of that are put on the business when you're in that situation, right? Or you may want to be looking maybe you're fine yourself. It's a second business, and you want your leadership team to be able to have long, a long term role create wealth for themselves, right? So think about what that objective is, preparation again if you're in that second, third or fourth stage, think about what your financials look like, right? If you're a cash basis, if you're if you're a cash basis, think about getting to accrual if you're accrual basis. Make sure you understand what the accruals your balance sheet and your income statement should look like if you're going to go to market. So get some advice. You don't have to engage a buy side or a buy side broker, but you can get some advice from friends. You can talk to some of us about what that looks like, understand some of the key terms within M and A, right? So you've heard the word add back before. What does that really mean to different buyers? And so you really need to sort of be prepared if you're going through a process, then you may have a SIM right? So confidential information memorandum, 10 to 30 pages is a great representation of your business from top to bottom. Little more thorough, you then go into sort of what the interactions can be, right? So you could be talking broker to broker. So sales side and buyer side, you could be talking directly with the buyer or the buyer and the seller. Can be talking directly when you're having those conversations, just sort of turn on the switch of like, all right, this is not the company that I may be working for. If it's a buy side representative, maybe a great person, but once you sell, you're going to be in the trenches with other people, and sort of conversely, on the buyer side, if you're talking to a representative, make sure. You get to the actual sellers in the leadership team of those group, those groups, excuse me, on the management on the manager meeting side. Just the process flows, typically zoom meetings in the beginning, and then you move on to in person meetings. Depending on your your structure, you may have more than just yourself. You may have your leadership team in that meeting. So thinking about valuation, it's the most important part, or that's what you think about the most how much money am I going to get out of the event? There's lots of other transactions, lots of caveats that can happen. I'll actually ask the panelists here shortly to talk through some of those things. You could start with an indication of interest, one or two page term sheet. You may start with a letter of intent, which is more like five to 10 pages. List out all the key terms. You take either one of those documents, typically, and then move into your diligence stream. Once you agree to those terms, your diligence streams, typical, always will start with a financial diligence sometimes you're concurrently working on the other diligence streams up there the diligence process is a marathon. Who here has been through it, right? It sounds like, Oh, it's great. It's going to be a month. It's going to be two months. You get through the Q, A, V, and then you find out, wait a second, I just got through the half marathon distance of the race, and I have another half marathon to go. And so you just want to be aware of that so you can sort of pace yourself. It's okay to say, Hey guys, I'm overwhelmed. We you know you're gonna get resistance from the buyer, but you need some time to run your business. Last thing you want to do is put your business at risk for two reasons. The transaction may not happen, right? It's not guaranteed to happen. Two, you need to run that business successful, successfully and profitably. After the close negotiations, you'll typically have, you know, a stock purchase agreement or an asset purchase agreement. So an asset purchase agreement being a carve out, typically synonymous with that, and then you go into the closed, sort of signed documents. Be aware your next stage is integration. So you've got to energize your teams to be ready to go. We'll talk here a little bit about communication to the leadership teams, but just be aware of that process. This wasn't meant to go into great detail, just to ground everybody on sort of the main eight stages, and then the next complete phase, which is integration and then running the business in the new way. With that said, I'll spill I'll start with you, and I'll ask you, what advice or input do you have related to the M and A stages or the M and A process?

You know, I think first of all, I'd say, if you haven't been through it, you're not prepared yet. I mean, it literally takes a tremendous amount of preparation. The reality of today, we've looked at the last 20 years of M and A activity in the industry. 40% of those have included private equity. About 28% of those had a very sophisticated, strategic involved. So these are folks that know this industry really well. And if you want to get a strong multiple, you've got to prepare for that at all dimensions. And we could talk a lot about this, but it basically comes down to the attributes of your growth model and and that your ability to generate above average profitability, and then this bigger, kind of more nebulous bucket that's called, like, strategic value. And a lot of that comes down to kind of like finding that what you do extremely well. Some of the other groups are talking about either strategic differentiation. But when you when you've built your model and you're aligned as a team to succeed in a certain area, you end up getting very high strategic value. But most of these things do not these exits do not just occur randomly. There's almost like no luck in it at all. And so if you're a group that has not had private equity before, you've not taken that. One of the biggest suggestions, I would say, is put make a de facto board, you know, solicit help from people you trust that cover your blind spots and help you in this transition. But the you cannot believe the amount of preparation it takes to have an outstanding outcome and I would also say someone earlier today, I think Maria mentioned, like she looks at the world in terms of quartiles, the multiples really align towards those. If you want a high, high multiple outcome, you have to be, have to have all the metrics to support those top one and two quartile performance. And it literally gets as scientific as that. So preparation, preparation, and cover your blind spots. And it can be very exciting, but the private equity guys are highly involved in the space, I think overall, that's very good if you haven't taken private equity, you know, talk to people who have and really know kind of what, what business you have, you know, in private equity kind of looks at either you're a platform or you're tuck in a platform is something they're going to use as the foundation to scale. A token is for economies of scale, understanding what you are and what kind of time frame you have to that exit. The last thing I would just say is, generally speaking, the private equity professional guys. Everyone thinks they're risk takers. They're not risk takers at all. Really focus on the weaknesses, covering those weaknesses, concentration of revenue, concentrations of profit, concentration in terms of team, and that's half the battle of getting successful as well.

Thanks. Bill Dwight, you want to comment. The

only thing I'll add to that is I think Bill made a great point about decide whether you're a platform or an add on, or add on or tuck in. Because if you're really strategic about how you design your business, and you pick one of those lanes, you can kind of optimize your value out of either lane. If you're in the middle, you're getting a little bit stuck, you may not get all the all the benefits of being a platform, and then get the valuation of being a tuck in. So I do think having a distinction between the two is important. Decision whether to hire a bill or not, or a firm like bills is a really important one too. That's an easy one. Yeah, they'll all know this by the time it's over. But the first time I sold my business, I've hired a banker and went through a full process. The second time, I had two buyers. We really had two buyers. We were keen on and we we ran our own process, but in either one of those scenarios, we put in the work, and we just had some experience under our belt the second time, which made us have put us in a place where we had a good outcome, but that the strategic advice is really critical to successful outcome.

So the only points I would add two points. The first one would be the key people on your team, like, make sure your CFO has experience in this before. And if they haven't, go get them experience. Get them experience with private equity or a public company acquire like they need to have this, and we're talking years in advance now. So for our business, we started around 2010 like our first conversation was around, okay, we want to build something to sell it. So right from the first conversation, the first breakfast, it was okay, let's just think about the mechanics in the business and the preparation to sell this one day. We don't know who to we don't know when, but that's the aspiration. So I think you sort of weave that into the fabric of the business, getting good financial controls, getting good audit understanding, every month, just sort of just building that into the fabric of the business. And the second lesson we learned was that it was actually zrg Who gave us our acquirer. They give us this advice, like, make sure you get a really good banker who understands the buying side, how they think. So. If you think you're going to get bought by private equity, make sure you get a banker who knows private equity really, really well. They've done those deals before. They know how the buyer thinks. They know what they look for. You've prepared beforehand. Don't Go call your neighbor who's a lawyer who does lemon law, and think they're going to help you sell your business to private equity, because so many deals have gone south because you just picked the wrong lawyer or the wrong banker. That's that was the biggest lesson for us in this last sell to zrg, yeah,

thanks, Matt. And I'll, I'll go back, Bill, you had mentioned briefly about sort of customer, client concentration, right? And so this next question kind of plays into that. So what are the top two to three areas that can increase value creation for an RPO? And I'll let I'll let you start first, then we'll go to Matt, then we'll go to Dwight. Mix up a little bit. Well, I

think first of all, you know, I think one general piece of advice for service providers, I always say is, Look at, look what the software guys do and how they measure themselves and and I think number one, making sure that your teams are aligned on the right things. Often we will, we will encounter a team where, where they think revenue growth is first or profitability. I think seeing alignment within your team and communicating that really well, I think matters a lot, but fundamentally you have to have, you know, very strong retention. Retention is really big. That tells the tea the tea leaves. You know, in this business, we don't have subscription revenue, like the software guys, but, you know, convince me that your project revenue is going to turn into something good the next time. You know, one thing, I'd say, maybe a little off, but, but you need to be able to explain why you win and why you lose. And that sounds like product market fit or service market fit, but literally, these guys are going to want you just look at every deal you've ever pitched, why you won, why you didn't win, and what you learned from it, and who won, and why, and how you evolve that. But I think, I think a lot of this game is just not trying to do everything, trying to be focused on what you do and and find that unique little bit of advantage you get when you're in your zone, when you're when you compete extremely well. And when you do that, you communicate that story very well. I think that's very good. The other thing I'd say is you need multiple, multiple dimensions to your growth model. You have to have one or two ways to win. You know, software SAS, about 23% of their growth comes from a client. You. Introducing the next product or service. So I think you're seeing a lot of this in the hire end RPO space, where you have bigger platforms, and they say they start with a question, what's your problem? And they have a solution for things. So I think, you know, not everyone can do that. Know, kind of where focus, where you where you succeed, and why, and communicate that really well. So

just think about the question, I think customer concentration. Know your space, become an expert in a space, and find a buyer who values that sector, that vertical market that you have, that they don't have. So make sure that your asset is something that is really valued by the buyer. And the second thing, I think, in terms of value optimization is you got to be really honest with the buyer through the process. Don't fake it. Don't make it up. Don't pretend you're better than you are. Don't pretend you're something you're not, because they're not just looking at your business, right? They're looking at how you behave through the M and A process, whether you're someone that they want to work with for the next five, six years and go build something remarkable. So talk about your warts, talk about your wins, talk about your clients that suck, talk about your clients that are amazing, like and they will. They'll through that process. The valuation isn't really decided until the end, so the valuation can be decided a lot on just how you behave through the process.

And to that point, management teams are super important. So if you're selling to private equity as a platform, you have to have very built out, professionalized management teams with depth senior management teams. If you're selling to a strategic partner, that middle management layer becomes really important. So one of our first lenses we look at businesses through when we're evaluating them is, is the management team strong? We're going to need a lot of help to build what we're going to try to build in a really difficult market over the next four to five years. Who's going to be in the trenches with us, super important to the evaluation, right? And I think then the next one we touched on in a couple of spots is quality of revenue, right? And so to the extent we can have long term partnerships, long term agreements, fee for service, those type of relationships are worth more, lower client concentration. If you have something over, you know, 10 or 15% in one client, it's going to start to hurt your value. Now, listen, we all have concentration issues. We all have quality of revenue issues, right if you're but, but if that's where you want, you want to be moving your business in the direction of sort of long term fee for service clients, high, high variability in types of clients and number of clients. And then the last point I forgot, so I'm not going to tell you that one, okay, one more. Come back to me.

All right. Well, we'll come back to you on that. Yeah. When one follow up point, when you think about sort of selling a private equity if you don't have a strong CFO, that will be determined and identified pretty quickly by that private equity firm. Post close, and so they will probably put in a CFO, or maybe that person moves into sort of a controller role. So just be aware of that. They'll have a great relationship with them during diligence. But most every P firm has a little different recipe for success, but they're always going to want to make sure that the financials are sound right. They they may get into your business a little bit more. They may not. For me, you know when, when Dwight and I and Bill were working with short capital in our process about a year and a half ago? The interesting thing was, they didn't ask a ton about our operations, about how we go about to recruit, right? We had like, 3040, 50 pages that we wanted to share with them. They're not recruiters, right? The private equity firms are not recruiters. If you sell to a strategic they're going to want to know what your operations look like. It's a very different discussion, right? So don't feel hurt when they don't want to look at all the metrics you have. I mean, they'll look at them and they'll analyze them, but they're not going to get as emotionally tied to the business, because the outcome of your business is going to be, or the results of, excuse me, the value of your business is tied to your financials, right? They're going to verify that the financials represent all the transactions that have happened in the business for years. So just be aware of that even when you're talking, you're, you know, you're prepping your leaders who they may meet. Make sure that they have some good financial acumen, right? So they can talk somebody. You don't want to make it up, but you want to start now getting them exposed to certain things on the P L, hey, Joe, I remember what I was going to say. I think it's important. I think that's a little too late. That's not right.

So, so you want to know what you want your business to look like to buyers in the end, right? And, and I see a lot of recruiting businesses that are kind of diverse, right? They have a staffing operation, maybe they even have an in the healthcare world, a per diem operation. They have exec search, and they have RPO. If you look at any of those business. In a vacuum, they're valued differently, right? So exec search businesses are valued at low multiples, right? Staffing businesses may be evaluated at higher multiples, but they're not the same multiples as RPO, right? So when you go to market, it'd be really nice if the buyer saw you and said, Oh, that's an RPO company. It doesn't mean you can't have 10 or 15% of exec search revenue in your business, and sort of get away with that. You don't want your buyers to spark start parsing value based on departments or divisions you have in your business. And so sometimes that means, as a as an operator, we have to make short term sacrifices, pass up cool opportunities. If our ultimate goal is, in the next several years, sell the business. We have to stay focused on the things we want the buyer to think we are.

Yeah, and I promised myself I wasn't going to say it, but I'm going to say it anyway, right? We've all watched Shark Tank, right? You've seen someone come into the tank and they have no idea what they're looking to do. They tend to be very early stage entrepreneurs. It's not that different. When you talk to talking to private equity firms, they're looking for you to know your strategy. If 80% of your strategy is sound, and you've got some things that you're trying to figure out and you watch, some advice for you, could position that by saying, Hey, I'd like to have a more formal board that can help us with that. Right? So you do have a strategy for the remaining 20% you just don't actually know what that is today, because that's part of your plan as you grow. So just think about that. We're going to shift a little bit talk about valuation. Dwight, we'll start with you. So valuation, what are one to two things about valuation that you didn't know until after your first transaction was complete?

Yeah, I think, you know, it's interesting, because, you know, in our most recent transaction, we were buyers and sellers, we kept 49% of the business right and understanding, you know, we probably left some dollars on the table at exit, because we had a longer view of what the business was going to look like, and we had to have the business in a position to be financially healthy, meet COVID, be able to do M and A going forward, be able to stomach downturns in the market. And so to the extent that I'm leaving a lot of equity in the business, then I'm going to be a lot more flexible, sort of on valuation. At that initial exit, I exited our travel nurse business. I've exited it three times now. So sold it initially in 2016 sold again, 18 months later, everybody got four and a half times their money. 18 months later, sold again two and a half years later, but I got 4.9 times their money. I'm an equity holder in that business today, I created a bunch more wealth after the first exit, when I had a partner that can help me do M A and all these other things. And so it sounds self serving as a buyer up here, but I've been a seller and a buyer, so I've had experience from both sides of this. But you know, to the extent that you you that you prioritize picking the right partner to help you have those kind of outcomes, then that you know last turn or a couple million dollars at your first exit is ultimately it becomes less important in the long run. So that's an observation I'll make after my first exit, where we had those multiple bite successes.

Matt, how about you? Wow.

So many lessons learned. I think the lesson learned on the first one goes back to picking the right banker. So the first when we sold, it was like 1997 and the banker through the whole process, just didn't like how the buyers were behaving, and so sort of gave us a heads up towards the end of the deal, and they sort of shifted the deal structure so it turned into cash, which turned out being a brilliant move, because their stock actually ended up tanking over the next two years. So it was really around the lesson we learned there was around being able to be flexible in the deal structure until the papers signed. So you can still be flexible. And then on this last one with CRG, it was around really understanding the mix of your business, sort of what you were talking about terms of what percentage of your business is recurring revenue, what percentage of your business is conversions or perm. So really watching that very carefully, and understanding that if your recurring revenue business is 80% or more, you're going to get an exit multiply. And they're really controlling your team, so they're not doing contingency searches or doing conversions that will screw the value, will change your valuation later in the process. So I think that's really important.

One little just nuance, I'd say, you know, don't, don't under, underest the underestimate the process. And fundamentally, there's a in addition to all the numbers and the metrics and the financials, it is a people kind of game as well. And particularly if you're a smaller business and you're selling to a very large business, the key there, half the time, is finding the right person that is going to own that that business, the champion on the other side that. Stick their neck out, or their career for a smaller business, sometimes the bigger companies don't want to touch the smaller businesses, because they'll mess it up. But finding that champion is really, really important, I think, in the process. You know, it's one, one thing, particularly to strategics, right?

If I can just say something on Bill's comment about the process. I know people have complained about the process in the past, but to be quite honest, they're buying your business, so just enjoy the process. Go through the process. Be as open and transparent as you can be, because they're going to give you a lot of money. So if you to complain about that process seems completely ridiculous to me. Just lean into it. Be a good partner. Enjoy if they ask you for 10 things, give them 10 things. If they ask you for 40 things, give them 40 things. Because if you're smart, right, they'll be your business partners for the next five to 10 years

now. Great points. And to add on to that, Matt, that when you go through the process, they're going to ask you questions that will make your business better if you're in that frame of mind, right? Like, why are you asking me that you're asking me about my customer churn? I've never done that analysis. What are you looking at? Maybe they'll show you So the summary results, or tell you what their what their goal is, or what they've experienced with other acquisitions, and now you can go back and really identify that gap. If you never close a transaction, you'll be better because of that. They're smart people. They look at their business for a reason. They look at those things for a reason. All right, so on, sort of going down the path continue to going down the path of key differences, or key differentiators. So what are the key differences between a buyer, who's a P firm and one who's a strategic acquirer. So, Matt, you want to go first. I

haven't been bought by Well, I guess the first one was a public company. It was semi strategic, if you consider loading up the balance sheet strategic. So I think we'll count that cancel that one private equity. I can only our experience was spectacular, so I can only tell you from our experience, I've heard some others that weren't great, but for us, the process was around being very open about the strategic assets that we've got, how it balances their strategic assets, and how you design a process where two plus two equals five. I I think for us private equity, the level of due diligence was actually much deeper than it was and for a public company, and so I think you have to look at that as respecting them, really understanding the operations of a business they're acquiring, and so deeply understanding and deeply leaning in, if, I think, if they're not asking deep, thoughtful, hard, tough questions, that should be a huge red flag. You should almost be embracing. The more inquisitive they are, the more I would look at this as a really serious person who you want to be a business partner with the next 510, years.

Not sure if that helps. And I'd say just generically, the strategic guys, they are more operators, so they're going to look at, like you said, look at the operations, how you're doing this with the private equity guys. They're not, they're generally not operators, but so they're backing the team. And so having that team in place is the critical thing. Just

a quick build on something Matt said, so private equity has a bad name. All private equity is not created equal, and I too have had two spectacular experiences with private equity. Sold two businesses to private equity, and they were very differential to the management team. Lots of people grew amazing careers while owned by private equity. They weren't sharp elbow, they were supportive. They were patient. They were patient. So it's not all what you hear. I've heard plenty of those stories too, by the way, but we've had a really good experience. Yeah,

and on that front, if, if you're going to a strategic or private equity, this is probably more appropriate for private equity, but it works in both situations. Get references on the private equity firm, right? Ask them for they're going to have their their founders that they worked with that had great outcomes. Try to get the ones that had poor outcomes. And get some of the details, if your partner typically is going to be the one that you're interacting with the most. Try to figure out what is this guy or gal all about? Right? Like, look the they're on social media. Look them up, see what they're doing. Are they posting pictures about their kids? Are they never with their family? Right? And you'll get a sense of that one thing a human that we did, which isn't very common, but we pushed to have a consultative process, or, excuse me, a collaborative process, when we were picking our advisory board, they're formal board members, but the private equity firms typically have control of the board, and we were able to bring on specific board members that helped us to grow the business into the future.

To Joe's point on checking references, I think we checked seven or eight references on our last deal 10 before that, when founders talked to. Founders on the phone, one on one, they tell you the truth.

Great. All right. Next question. This one's more about sort of M and A jargon, right? You guys have heard we haven't talked about today, but you know, you got EBITDA debt to equity, free cash flow. You know, the word bespoke is in every private equity meeting, right? Means custom. I don't know why they would. Just don't use the word custom anymore, right? So there's a lot of that happening. What are you guys seeing? And you guys can choose who wants to go first. What are you seeing is the latest and greatest sort of analysis or calculation that is sort of up and coming, that we're going to start to that we're going to need to address or analyze in the coming years. Yeah,

 I guess there's nothing specifically around PE, just around M and A in general.

For me, it's around these PES that are massively scaling. So I think it used to be years ago, pe might have a portfolio of 1020, 30 companies, versus now you've got PES with 500 companies. And so it's starting to look at, if you're acquired within a PE, the grade of PE, the size of PE, and how you can grow your business. Because for some private equity, they have so many portfolios, anyone of us in this room, you could go inside one of these PES and grow your business simply off their port, cos you wouldn't even have to go out into the marketplace anymore. So suddenly it's a cross sell game, not an organic build game. So you it's really interesting to sort of look this is like a combination of strategic and PE internally, you could easily be a strategic asset as a port co serving all the other port, cos you massively build your business.

It's a good point. And all things data, right? It's like that. Now the private equity can look a layer, or your buyer can look a layer deeper, and they expect you to have good data integrity, and they'll do the work on that as well. I would, I would say that one trend that I've been seeing in my board, work within private equity is a lot more rigor around pre offered due diligence. I mean pre offer value creation plans, right? So when firms are trying to buy you, or the private equity or strategic they're putting together a growth plan, sort of behind your back, and they're also collaborating with you, right? Here's what we really expect to happen. Let's push the management team see what they can do. But I've seen a lot more rigor in execution on those plans. And so they'll come to the they won't leave. They won't let you leave many things to chance, and they're not just guessing anymore. They want a really specific value creation growth plan. We talked about creating value in your business. We all sort of probably mistakenly left out a really important word. It's all about growth, right? And so to the to the to the extent you walk into management and tell them what you're going to do, they're going to hold you to that they may be discounted in their head. They're going to hold you to that. They're going to help you write a very specific growth plan, and they're going to hold you accountable to that. Doesn't mean you can't change right circumstance you're going to change, but you have to be really thorough and thoughtful about why you're changing and how you're going to change, and what you're going to do to overcome that obstacle that you might have faced.

And I don't know if it's a the term is that sexy, but I think to the point here about like growth, you've got to show people exactly how you're going to hit your plan. So the tool that you see all the time now is a revenue bridge. So you start with last year, what's your churn? Then what's the near term pipe that you've got some paper on? What's the weighted pipeline? And then you have your budget, and then you've got that blue sky between and you have to quantify every single step to get there. So that's like a standard tool. Now, for sure, the other just general comment I would make. It's not really sexy, but I tell you, the thing that drives a lot of people crazy in the service, but this is you need the gross margin will tell you what's going on a lot. And you need to be able to calculate gross margin in all ways that make relevant, by product line, by customer. I know, at Cielo, we worked very hard for a long time to make sure we knew gross margin on every single customer. So, you know, just focus on gross margin and get that right. That's helpful. And have a plan. You know, the best companies execute the best, frankly, right? And there's reasons why some guys just deliver all the time. Have a plan to constantly be moving that gross, gross margin up. It's just that's, that's the road where the rubber hits the road.

Good. Matt, yeah, thank you, Bill. Just

there was a word there that Bill said, in terms of exit I think it's important, if you talk to private equity, understand their exit trajectory and their exit timing, because there are some private equity companies still work in that sort of 789, 10 year period. But there's a new class of private equity now that's running businesses and holding businesses and being operators of businesses. They may not have that transaction timeframe at all, so you really understand the expectations of their timeline for their liquidity. Yep.

Yeah, great. All right, so next question for you all, Dwight, we'll start with you, and then Bill, and then Matt. So we're going to shift a little bit to a strategic acquisition, right? So RPO company gets bought by another RPO company or staffing firm. What's the right time and the right message to share with sort of that second tier leadership team at your company, that there's going to be a change, that there's a sale,

yeah, yeah. I'll speak to that as our initial sell to private equity. And then when we purchase a business, and Dave campius is, raise your hand back there. We bought him, so he'll have a view on this as well, so that we close. That's Princeton, one acquisition we did earlier this year, so he can speak specifically to his experience with this. But in my view, when this is and my views may be a little unique, I you know, Trust is everything with your team, right? And in the two transactions, we had to sell our businesses to private equity, we let our senior management team under the tent really early, like, probably a lot earlier than others would, as soon as we were in, like, a really serious conversation. We hope they were we they held in confidence initially, because we don't want to create drama where it's unnecessary. But then when we had, when we were feeling like there was a high probability of close, we let the company under the tent right weeks and weeks ahead of close. That's unconventional. A lot of people don't announce until the day before the day of close. So my view is to maintain that trust in a time of great change, and to be prepared to communicate it early and then over communicate what you're going to do with it from the from that day forward, maintains trust and momentum. Post close, and just to interject there, we didn't share early on the name of the company. We shared that there was a transaction and sort of the general size of it, so people get their arms around it when it was closer. We shared the name because of the confidential reasons.

I think it differs in every case. But believe it or not, the stuff does get out there. So So I think you do it when it's important and and when you can you want to control the message better. I mean, like, if people are hearing third party, that's when things get nervous and stuff like that. So I think, generally speaking, when it gets gets important, certainly like when you get to the point where you've got an indication of interest, you're trying to get to that final cut down and group, you know, you have management meetings, and there it's really about the team. And a lot of times, you know, you will work very closely with these folks. Oh, the senior team have been through processes, but they want to see the rest of the leadership team, and you got to exercise and get those guys comfortable. And for sure, by then, they need to know what's going on. So I'd say earlier than you think, probably.

So we did it two different ways. The first one was a mistake. We waited till after the deal was done. That was a lesson, hard lesson learned. Second one, we had spent 10 years building culture of sort of brutal transparency. We called it hit. It was honor, integrity and trust. So our analysis was, if we don't tell our team we're being complete hypocrites against the culture we just spent 10 years building. So we pulled the leadership team aside about a month before opened up, told them exactly what was happening. Name of the company, went through the financials. We had built in a bonus layer for all the top managers. We wanted them to know what was happening and how we were locked in, and how we would they would should be locked in as well, and how it would benefit them to be excited about the opportunity and stick around. And that second one was a better approach.

Great. Last question, Matt, we'll start with you, and then go, Bill and Dwight, so when you go through a transaction, there's a lot of change, right? What's your messaging to the organization around the change?

I think the way we messaged it internally was one of why we're doing this, how the process occurred, the benefits to us, the benefits to them, our expectations. We were very honest about the math of the business. Everyone really understood. I think what happens is, when you go through a transaction, people start to create these imaginary stories in their minds about what's happening. They start to go into crisis mode. What's going to happen to me, what's going to happen to my mortgage, what's going to happen to my kids, school payments, my boat payment. They sort of they internalize all this activity to what's going to happen to them. So you have to be very honest with them about that they're safe, that the we will honor their work, that there's a great place for them. We thought about them through the process, and we have trajectory in line for them. I think if you make it more about them and less about you, then they sort of buy into the philosophy of why you're doing this, and they sort of get on. Old. I don't know any other way now, that's great. Thank you. Bill. 

Your thoughts, I'd say that, I would I think that's right. On the other dimension to that, I would say is like you also have to communicate to clients and partners what's going to happen too, and even just when you're taking private equity the first time, what's that mean? What's that change? And generally they think the message and the reality is it helps them be a better client or better partner for them. So I think, I think that's another dimension to the messaging, messaging as well. The biggest mistake acquires make is they don't protect the things that have made the business they're buying great, right? We have this buyers have this arrogance about them selves, and they make that mistake, and they they wash out millions of dollars of value in the first 90 days. Happens all the time. There is no shortcut to that. It's a intense collaboration with your new partner, Dave and his team came to Jacksonville, and we sat in a room for a couple of days, and Bill led a process where he's drawing an org chart of the future. On the board said, What do you guys think about this? Let's argue about is, debate it, and let's decide on where we want it, where we want this thing to land. And so just radical transparency, high collaboration is the way to is the way that you preserve the things that have made that business

Great. One thing I'd add to that, we didn't really bring it up, but, you know, in this process, if it's private equity, half that diligence is going to be explored through a creation of, like, 100 day plan, or 100 day plan, where they're literally exercising what's going to be happening, the prioritization right away. And I think this is, you know, one of the things that I think people there's some learning curve adjustment for working with private equity the first time, but it's a time game. As soon as they put that money in, that's a cost of capital, and they don't want to waste any time. So a lot of this diligence comes through this creation that you will mutually do with your private equity. What's the first 100 days work look like? They don't want to trip up out of the box at all. And that actually can be a good thing, right? It really makes good coordination.

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