Why HiTech bought Hudson (and why the hard part is ahead)

Until last month, hardly anybody in the local recruitment industry had heard of HiTech Group Australia.

Last week, this small ASX-listed company entered a binding agreement to buy the remaining assets of Hudson Australia from the company’s administrators. On the numbers alone, it’s a unique deal, one without precedent in the local industry

The deal (broadly)

HiTech is paying an upfront $7 million, with up to $3 million more in deferred, cash-contingent consideration, for a business generating roughly $190 million in pro forma annual revenue. HiTech picks up the assets, including brands, the client relationships, the contractor workforce and the operating platform, while the historical liabilities remain with the administrators.

Given what’s emerged about Hudson’s position with unpaid superannuation and wages running past $8 million, an ATO debt north of $20 million, and a Victorian labour hire licence cancellation, leaving those liabilities behind is the entire rationale for structuring the deal this way.

Hitech has told the market the deal is “Expected to be earnings accretive following integration” and that “HiTech will maintain a disciplined balance sheet with capacity to pursue future strategic opportunities.”

The deal (specifically, as per HiTech’s ASX release)

• Significantly expands HiTech’s geographic footprint to include a presence in NSW, ACT, QLD, SA and WA
• Diversifies HiTech beyond ICT recruitment and contracting into professional services, business support, projects and permanent recruitment
• Combines HiTech’s established Federal Government leadership with Hudson’s extensive government and private client relationships
• Addition of industry leaders and staff from within the Hudson Group
• A significant uplift to HiTech’s contractor and client base intended to transfer to HiTech to ensure a smooth transition and continue a high standard of delivery for customers, and deliver immediate significant scale to HiTech

The deal (the business operations)

Hudson’s core recruitment operations have always been profitable. Hudson’s tech business (Upper Ground) was, according to the AFR, on the market in early 2024 with reported revenue of $235 million, gross profit of $24.6 million and $6.3 million in EBITDA. The administrators have not publicly released the most recent gross profit or EBITDA information, but it’s reasonable to assume that, given the loss of the entire contract business in Victoria and the general decline in the market, the gross profit and EBITDA results have declined but not collapsed.

The foundation of this performance has been Upper Ground’s long-tenured consultants (4 with more than 20 years and another half dozen with between 8 and 20 years’ tenure), who have high-performing desks on the back of established relationships with key government and private sector clients. According to the Upper Ground LinkedIn page, the business has around 25 fee earners with around half of those based in Brisbane and about half a dozen in each of Sydney and Canberra.

Since Hudson entered voluntary administration three months ago, the departures have been minimal. Contract consultants have much more to lose than perm consultants in switching employers, which has been a significant factor in retaining consultants during the unpredictable and stressful period of voluntary administration.

Chris Lejsek, Hudson’s Canberra-based MD of government business, announced his departure, after 17 years with the company, last week.

The deal (the transition, as per HiTech’s ASX release)

“Initially, the acquired Hudson assets will operate as a standalone business completely supported by the HiTech Group, allowing the Hudson business to focus on maintaining customer service, retain key talent and simplify the operating model. Over time, selected support functions, technology platforms and shared services will be progressively integrated where they deliver sustainable operational and shareholder value.”

Hitech acknowledged that not all Hudson employees will be transitioned.

How HiTech leverages the deal

It’s the existing relationships and revenue flow Hudson’s tech recruitment business brings to HiTech. Ray Hazouri and Elisa Hazouri are the only substantial business developers within HiTech. Given that 64-year-old Ray and 58-year-old Elias are closer to the end of their respective working lives than the beginning, the acquisition of the Hudson relationships, predominantly across federal and state governments, is a good move that provides more options for transitioning the Hazouris’ client relationships over the medium term.

HiTech’s succession issue

There appears to be no internal successor to either Ray or Elias Hazouri. Acquiring the Hudson business provides the Hazouris with options. Hudson CEO, Dean Davidson, is just under a decade younger than HiTech CEO Elias Hazouri and would be the obvious first person under consideration for that not-yet vacant role. Whether he would want the role, or whether the Hazouris deem him suitable for the role, are different matters.

The hard part

HiTech runs a lean, non-commission, ultra-efficient business model underpinned by the client relationships and leadership of two people. Hudson is a larger, multi-state, commission-driven business that, through many long-standing and high-performing employees, has a much greater spread of risk. It’s just come through the trauma of administration, regulatory censure and, inevitably, some staff attrition. Reconciling employment contracts and incentive structures looks likely to be the first cultural flashpoint, well before anyone gets to systems or brand.

Whether HiTech can impose anything resembling the discipline and predictability of its successful business model on a larger business, spread across more locations with more senior staff, is the big question to be answered across the next six to 12 months.

For now

Court approval to extend the administration period while the transaction progresses has been granted. Hudson remains under the control of the administrators until all the conditions of the deal have been satisfied.

Related blogs

HiTech: who owns it, runs it, and are they any good at it?

Victorian LHA excoriates Hudson directors Mark Steyn and Kendall Ryan

Mistakes, bad timing and bad luck: A timeline of Hudson Australia’s slide into administration