Many recruitment business owners often start-up their companies with an already well-developed exit strategy in place – these strategies frequently conclude with the sale of their business to the highest bidder.
We are often asked to provide business valuations for recruitment company owners in order to help shape and inform these exit strategies, and we see a number of commonly occurring factors that influence valuation.
One of the many traditional methods of valuing a business is by applying a multiple to a normalised level of EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). However, when valuing recruitment businesses, it is industry practice to apply multiples to NFI (Net Fee Income). NFI is seen as a better performance indicator for recruitment companies across the sector, and is calculated as the total placement fees of permanent candidates, the margin earned on the placement of temporary candidates and the margin earned from advertising. For larger recruitment companies, NFI also includes the outsourcing, consulting and pay-roll margin earned by the recruitment process outsourcing function (RPO).
Typically, we are seeing NFI multiples of 1.5x – 2x being paid for recruitment companies, many of which are displaying the following characteristics:
Get in touch with the PEM Valuations team to discuss your business valuation requirements.