L to R: Eddy Bidese (2004), Robert van Stokrom (2004) and Robert (2023 at the SHAPE Conference with Robert Darby, MD – GBS Recruitment)
Many recruitment agency owners dream of selling their business for ‘life-changing money’ however very few accomplish it. Former DFP Recruitment CEO, Robert van Stokrom is one of those few.
Van Stokrom and his then-boss at Forstaff, Eddy Bidese purchased Dorothy Farmer Personnel from its founder in 2004. At the time DFP was a $45 million revenue business, largely generated from call centre temp and perm placements in its Victorian operation, with smaller branches in Sydney and Brisbane. Telstra was the company’s major customer.
Within months Bidese and van Stokrom were underway with their growth-through-acquisition strategy, purchasing Prime Commercial Placements and Prime Contact Centre Solutions, from long-established Adelaide recruitment company Prime Placements.
The following year, in 2005, the rebranded DFP Recruitment bought Network Recruitment Services one of the largest suppliers of staff to the call centre industry, with 45 staff across Sydney and Melbourne offices.
Later that year specialist health and science recruitment company, Malcolm Press & Associates (MPA) was acquired bringing DFP Recruitment to 130 staff across 11 offices.
An additional six acquisitions over the following 13 years led to publicly-listed Japanese staffing company Will Group acquiring 60% of DFP’s shares in January 2018.
For the year ending 31 March 2020, industry news service, Shortlist, reported DFP Recruitment recorded an after-tax profit of $1.8 million from revenue of $159.6 million.
Unlike almost all their local counterparts, DFP was able to grow both sales and profit over the COVID-ravaged 2021 financial year, thanks largely to government contracts, with Shortlist reporting the company recorded an after-tax profit of $2.2 million from revenue of $170.1 million. Temporary placement revenue accounted for 98.2% of the company’s sales.
Bidese and van Stokrom completed their earn-out period in March last year with long-time director, Kate Coath being promoted to replace van Stokrom as CEO.
Two weeks ago I witnessed van Stokrom share his DFP journey from purchase to sale at the RCSA SHAPE Conference with his presentation Your Best Business Exit: You only get one chance.
I had many follow-up questions so I selected the most relevant ones and asked Robert if he would be happy to answer them for my blog; which, happily, he was (note: when I use ‘you’ in my question, it refers to both Robert and Eddy, and later Kate, as the directors of DFP Recruitment).
Ross: What were the minimum financial or size-related criteria you would consider before embarking on a serious discussion with a potential acquisition’s owner?
Robert: We didn’t really set any firm guidelines as we were more interested the ability to expand geographically and diversify. However, the business had to be profitable and its financials were reliable. Under these criteria, all comers were of interest.
Ross: What are the key criteria of a sustainable business, one worth acquiring?
Robert: A healthy mix of temp and perm, stable financial performance, good clients, and a transferrable business from the owner
Ross: What were the deal-breaking red flags in businesses you ultimately decided not to make an offer for?
Robert: During our process of successfully buying eight businesses we rejected around 35. The main deal-breaker was the culture of the business and the behaviour of the seller.
Ross: What were the most common causes of due diligence failure in the businesses you made an offer for but ultimately did not purchase?
Robert: When a more detailed review of the financials revealed some inconsistencies in the way income was booked. We did not buy a business because of potential; we bought it based on historical performance.
Ross: You mentioned that you looked at whether employees were ‘bossed, not led’. What do you mean by that?
Robert: The business needs to be led, with strong leadership through the hierarchy. The temporary absence of the CEO/Founder should not affect the success of the business long term. This makes for an attractive business for acquisition as an earn-out leads to a successful completion.
Ross: You listed ‘strategic thinking’ as an important part of the leadership demonstrated by a business DFP ultimately acquired. In what ways is strategic thinking most commonly demonstrated inside a business you acquired?
Robert: The strategic thinking was evidenced by the solid preparation the seller has laid over several years. These include accurate financial records, good stable operational processes and strong staff retention.
Ross: How did you asses the value and importance of PSAs and panel inclusions in acquisition targets?
Robert: They were very important to us as it provided a stable future business. A proviso was that there had to be reasonable margins and good returns. They should preferably be supplemented with other contingent business enjoying higher margins.
Ross: What are the most misunderstood aspects of a recruitment agency’s profit and loss statement and how does this lack of understanding most commonly show up in negotiations or due diligence?
Robert: Quite often owners enjoy personal benefits that reduce the financial performance of their business. There are many reasons for this, and of course, this affects the sale price as it usually reduces the EDITDA. There are ways to deal with this which require planning.
Ross: What were the differences, if any, in the way(s) business you acquired used external advisors, compared to businesses you didn’t acquire?
Robert: We found that those who had external advisors were better prepared, more realistic on sale expectations, and easier to negotiate with.
Ross: In what ways does sentiment show up, and potentially derail, an acquisition?
Robert: There were instances of an emotional attachment that reduced the enthusiasm of both parties for the sale. A clear, succinct, and total commitment to the sale process is the only way to success.
Ross: DFP was purchased by a listed company in Japan, Will Group. What’s important for an Australian-based business owner to know about selling to a Japanese company?
Robert: Be prepared, have all your due diligence tight as a drum, and be patient.
Ross: What is the minimum size an agency in Australia needs to achieve before a larger company would seriously consider buying it?
Robert: There are so many different firm sizes in our industry; all are attractive to different types of purchasers. For most significant overseas acquirers’ annual sales of at least $30 million with EBITDA of around 5% would be a minimum. However, there are other potential acquirers, mainly larger Australian private firms, which have an interest in smaller companies.
Ross: If you were starting again, what have you learned from the process of acquiring agencies with a view to a future sale that you would do differently (if anything)?
Robert: I would have pushed through the synergy opportunities more quickly; this would have contributed to faster bottom-line contributions.
Ross: What’s your best estimate of the number of flights you took in the 18 years from your purchase of Dorothy Farmer Personnel in 2004 to your exit from DFP Recruitment in 2022?
Robert: Oh wow, that’s a good question. The process took me all over Australia including The Pilbara and The Kimberly, as well as several trips to the US, Europe, and Japan. All up I would guess approximately 700 flights.
Ross: What are you going to do with the rest of your (hopefully, very long) life?
Robert: I have a great mixture of business and personal fun happening. I am enjoying my role as a Leadership Coach as well as assisting recruitment firms to navigate the very path I did and help prepare their business for sale. On the personal side Leonie and I enjoy our large family of 7 children and their partners, as well as 13 grandkids. This combined with my motor racing, Leonie’s dancing, looking after our car collection, playing in our band Red Rock and satisfying our travel bug keeps us active for sure.
Ross: All the best for your future, Rob. You have certainly made a huge contribution to the local recruitment industry so it’s great to hear you are going to stay involved.