Deal too good to be true? / What to consider for small staffing agency?

April 15, 2024

by a searcher from University of Texas at Austin in Dallas, TX, USA

Hi everyone, I am currently a part time searcher in Texas that is at the beginning of my journey. Through a college connection, I've come across a promising (though small) deal based on the CIM:

- Industry: HR/Staffing Recruiting
- Last 3Y revenue: 225k, 125k, 230k
- Last 3Y SDE: 145k, 80k, 145k
- Absentee: Owner spends 5 hrs per month on the business with two 1099 employees that have both been there 6+ years
- Asking Price: 400k

This is unlikely to be a home run due to the size, but the back of the envelope###-###-#### 5x DSCR has me thinking this could be a pretty promising single to start off my search career. Do you all have any feedback/risks to consider when looking at deals of this size, or in this industry? To me, vetting the 1099 staff is the essential piece to this since they are the operators.

Thanks!

Reply by a searcher
from The University of Chicago in Los Angeles, CA, USA

I worked on a staffing deal a couple years ago. The business focused on industrial / distribution staffing and was in the 10s of mil in size. As I got to know that the industry, it was very interesting to see how rapidly businesses in the space could grow or shrink. It is temporary staffing after all! Often it is done through rainmaker types who could win big accounts. If that is you then, maybe a good fit. My personal preference is to focus on businesses with a bit stickier revenue.

Reply by a searcher
from Rutgers in Philadelphia, PA, USA

Staffing/recruiting in general is very turbulent right now. Smaller agencies are typically very dependent on the owner's professional connections. If you're making the purchase with debt, I would consider it a very high risk deal. I've seen single-owner staffing agencies with revenue swings higher than the annual revenue of this business. I would approach this with extreme caution.

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