Thu, 17 Oct 2013 | By Philip Ellis, principal, Optima Corporate Finance
Many recruitment businesses have expanded overseas, some more successfully than others and the sentiment remains that international expansion is the key to creating additional value. Is that true?

Undoubtedly successful international expansion will add value to a business. We have recently seen recruitment firm Antal sell their Polish business, having previously done the same in Russia. So why haven’t others followed suit?

Antal have approached their overseas expansion differently to most by seeking to create separate assets in overseas territories which can be sold independently. Whilst it is reasonable to assume that not every venture has been entirely successful, they now have two success stories under their belt. Other businesses tend to integrate their overseas presence to create a larger entity rather than building them for independent disposals.

So will international expansion add value to a UK recruitment business? If successful, the answer is yes. Here are some key reasons:

• US acquirers are increasingly looking to follow their clients internationally, which often means Europe. A UK business with European presence will tick more boxes than a business solely represented in the UK and will therefore achieve a higher valuation. It should however be noted that to date there have been a limited number of such transactions.

• The UK is generally recognised as the most mature and saturated recruitment market in the world. It is therefore likely that margins will be under less pressure in certain overseas markets, subject of course to the specifics of the market you select and the level of competition. The beauty is that you can select the market which you feel offers the best return.

• Scalability is a key term in business valuation. Proving that you can take your brand into a new market will suggest that this could be replicated in additional territories and you therefore have a scalable business.

• Staff attraction and retention is easier when career development can include international postings. Good staff will lead to high performance, which translates into value.

So why doesn’t everyone do it?
Just as not every recruitment business will become Hays or Michael Page, neither will all businesses expand internationally. Some of the reasons will include:

• Lack of know-how
• Low-risk profile
• Lack of capital to invest
• Shortage of management time
  

For those businesses considering international expansion, experience has shown that certain strategies are less risky and more successful than others. Here are some ideas to consider:

• Work the market from a UK base first and only open an office when you have already established client relationships (note that it is the physical presence in the local market which creates value)
• Get clients to take you into a new market by partnering with them to fulfil their requirements
• Ensure you understand local practices, culture and legislation
• Deploy a mixture of locals and existing trusted staff in the new office
  

It would not be advisable to charge blindly into a new market just because others have opened there successfully. Some markets can quickly become saturated and competitive and late entrants can find they have missed the boat.

So in conclusion a successful international expansion policy can definitely add value, but evaluate the risks and potential rewards carefully – you might find that the safer option is to devote efforts to growing your domestic market.

• Click for more City Comment from our panel of recruitment experts, and check out the new edition of Recruiter, also available online, for more from Antal boss Tony Goodwin on expanding overseas.