Enhancing EBITDA in Private Equity backed Professional and Recruitment Services

Enhancing EBITDA in private equity backed professional and recruitment services

Mike Lander Blog, Private Equity

It would be easy to argue that Procurement activity to deliver EBITDA improvement is the same in any sector so why focus on Professional/Recruitment Services businesses? The reality is, a critical understanding of sector dynamics, company culture and 3rd party cost/sales ratios all play an important part in how savings are prioritised and delivered.

For example, the key challenges facing Professional Services and Recruitment businesses include:

  • Uncertainty about the economic recovery is of particular concern where you are selling consultancy services and/or relying on a recruitment growth climate
  • Your primary assets are your people, which is reflected in your cost base which is typically circa 40%-60% of revenue
  • Your ability to package, market and sell your services is paramount to both your sustained growth and to your clients’ perception of you
  • Technology enablement is key to driving efficiency and therefore profitability of your business
  • Your ability to build innovative services based supply chains is key to serving global clients where you may not have the geographic reach, capability or credibility to deliver the entire solution yourself

Therefore, from a procurement perspective, successful savings’ delivery programmes that meet the needs of both the PE investor and business executives typically focus on:

  • Reviewing 3 year fixed term contracts with more flexible and scalable arrangements so that the cost base can be flexed up and down easily as the economy shifts
  • Re-negotiating employee benefits packages and claims history (healthcare, pensions, car, etc) so that the employer remains a highly attractive place to work yet the per person cost is reduced, often dramatically
  • Re-negotiating and consolidating Marketing Services contracts to leverage scale, reduce retainer based fees and benchmark Agency rates
  • Replacing legacy enterprise technology solutions with SaaS based, mobile enabled infrastructure
  • Negotiating commercial arrangements with partner organisations to maximize the size of the prize to clients and all partners

In summary, procurement initiatives should be prioritised in line with sector dynamics to maximise enterprise value over the medium term.