M&A: how to choose the target market

20, January

In a growth strategy by acquisitions, what is more important? The macroeconomic environment of the target market? ...

In a growth strategy by acquisitions, what is more important? The macroeconomic environment of the target market? Or is it the particular performance of a potential seller?  Which are the other critical factors to be taken into account?  We will try to summarize the key aspects within this topic.

By Eugenio Micheletti* for staffingamericalatina


In these turbulent days, investors face huge challenges when choosing where to grow, because of many circumstances that affect investment decisions.

The ranking assigned depends on each investor, but firstly we can mention the commercial war between USA and China, that adds uncertainty about the growth rate of the most important economies of the planet for the next years, and about the behavior of all the countries that trade with them (as some responses could be treated as a “treason”, and thus be penalized).

We are all waiting for what will happen in February with the “Brexit” and it’s effect in Great Britain, Europe and the rest of the world’s economy.  The impact will definitely not be harmless; Scotland is trying to secede from Great Britain and remain as part of the European Union.

Other main factor is the entire world’s low growth rate forecasted for 2019 (2.9% / 2.6%) and 2020 (budgeted at 2.7%).  In June 2019 report, the World Bank Group foresaw a perspective of investment decrease for the next year.   The report “Global Economic Prospects” has an eloquent title: “Heightened tension, subdued investment”.

It seems that the world reinforces its tendency to close, since weaknesses in the Mercosur, and the tense relationship between USA and Mexico are added to the cases mentioned.  Perhaps the Pacific Alliance is a positive exception to highlight at this point.

In addition, we must add the socio-political uncertainty in various countries, due to the past and current conflicts in, for instance, France, Spain (specifically Catalunya), Venezuela, Chile, Ecuador, Columbia, Bolivia, among others.  It is difficult to realize when the problem is temporary as in Chile, I believe, or when it is structural (and with a long-term solution) as it is in Venezuela. However, both cases need to be assessed deeply.

All these factors affect the investor, as he becomes a  more careful, cautious and analytic when it comes to taking a decision.

In addition, low interest rates in the world, some of which are even negative, force investors to implement more sophisticated investment strategies.

A year ago Chile looked like a stable and prosperous economy, and remains so, but it is going through a socio-political chaos and we don´t know how that will be solved.   Does this mean that Chile is no longer an investment destination?  Of course not, if we think strategically.  There are many companies with profits over the market average (and over the average of developed economies) that will remain stable and profitable.  Naturally, we can always adapt the timing of the investment in order to optimize the investment recovery.

An acquisition (or sale) is an integral part of the strategic plan process, in which not only the target market’s macro economy is analyzed, but also many other aspects: operations of our main clients in other countries; potential synergies with management teams of foreign companies; potential sellers profits over the average of the sector; regions of the world with the highest growth rate forecasted; tax benefits for the headquarters in other regions; potential synergy in the mix of services (opportunity of cross selling); cultural compatibility between buyer and seller for a better merge; better use of the Senior Management structure (that could be in charge of other country`s headquarters); etc.

With the aim of being more assertive in acquisitions, we must consider new technologies, machine learning and artificial intelligence advantages, such as efficiency and the reduction of response time to clients.  Just to mention as an example, in 2016 Recruit acquired Indeed, and as a result it strengthened the S&S business.

Included in its report of November 2019 called “Workforce Solutions Ecosystem: 2019 Update”, Staffing Industry Analysts has recorded well over 200 investments/acquisitions by staffing firms in non-staffing categories (Talent acquisition technology, Other workforce solutions, Process outsourcing, Payroll and compliance, Direct work engagement) since Q1 2014.

Throughout the last years, the “online staffing” and the “just-in-time staffing” companies were introducing to the workforce solution ecosystem, and they are growing at a much higher rate than the traditional staffing companies are (+35% vs +5% Y/Y in 2018, respectively).  These business models were born digital, or they incorporated the required technology to optimize the critical processes, and are better than traditional business in response time and profitability. Concerning this, we can mention Robert Half as an example, which in August 2019 launched Robert Half Direct, its own online-staffing platform.

Coming back to the acquisitions strategies, we strongly believe that the approach has to be oriented to the “Company” and which one is the most interesting to be acquired, rather than the attractiveness of a “Market”.  Traditional businesses with technology incorporated, as well as the technology companies that could increase the profitability of the buyer, there are intelligent opportunities to be assessed beyond the market where the company operates.  Then, we can evaluate different companies in many countries, and weigh the macroeconomic and political situation and the companies’ performances (because for some reasons they achieve these extraordinary results).



Lastly, I would like to add that the geographical diversification reduces the corporate risk, stabilizing the cash flows, because the problems of one market could be neutralized by the extraordinary results in other region, and there are regions with really attractive growth projections.




In the current circumstances, in which investing implies a greater risk, the acquisition processes become even more complex and sophisticated.

Hence, we recommend focusing on three relevant aspects: weigh strongly the features and performance of those companies assessed over the specific market where they operate; analyze incorporating technology for more efficient models of service; and evaluate the chance to become more “global”, taking the opportunities of growth in those regions with higher potential.


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