How to prioritize investment alternatives and target markets.

By Eugenio Micheletti* for staffingamericalatina

Given the general business dynamic, and particularly our industry dynamic, there are many investment options for a company that aims at developing new markets through acquisitions. Despite the fact that there might be a clear idea of target markets, potential sellers of such market may be very different and interesting. This complexity makes consultants delve and analyze every aspect to consider when evaluating each alternative, examining them according to the synergy with the buyer, but, most importantly, considering their capacity to quickly align with the buyer’s corporate strategy.

We know that earnings before interests, taxes, depreciations, and amortizations (EBITDA) is that basis to estimate the Business Value. But, in our opinion, it is more important to focus on the gross profit, as the indirect structure (shared service center) is where buyers can make their greatest contribution, as they know how to improve and make the structures more efficient. Centralizing tasks on a regional or global level, either by implementing new information systems, automatizing tasks, or using new management tools based on best practices.

Several companies that arise as potential sellers have not been able or have not known how to become more efficient, but they show proper performance in three key business aspects: commercial management (setting prices, open or closed coefficient strategies, the mix of services, customer loyalty management, etc.); operations management (management of provisions: replacements, several payments, labour suits, etc.) and direct costs management (recruitment expenses, insurance, transportation, clothing and equipment costs, etc.). These aspects clearly represent a competitive advantage that is really hard to achieve, as well as aspects in which buyers will not be able to make a significant contribution in the short term, as they are linked fully knowing clients, regulations and business risks in each market.

Seizing these opportunities can increase the return on investment and reduce its recovery period.

CONCLUSIONS

We believe that, in the comparative analysis of investment alternatives from the economic point of view, it is interesting to change the factor of hierarchical organization, granting greater importance to the gross profit and the potential reduction of indirect costs, caused by the optimization of structures, considering the synergy of corporate structures with local structures as a mean to achieve larger operation margins for the business group.

*Eugenio Micheletti is Director of Emerging Staffing Brokers – emicheletti@emergingsb.com