Interaction's MD spoke to Christopher Goodfellow about his aims for Kelly Interaction
Is the downturn batters the staffing sector, Interaction Recruitment has launched an aggressive 'buy-and-build' strategy, acquiring 31 branches from troubled multisector recruiter Kelly Services.
The company's headline-grabbing move rapidly expanded its nine-branch network, priming the company to gain marketshare and capitalise on the upturn.
"The recession is going to be over in a year to 18 months. We want to be out there. We need to do the work now for when it happens," Andrew Gilchrist, managing director of Interaction, told Recruiter. "We have a clear plan here. If it wasn't this deal there were two or three other things we were looking at.
"The barriers to entry are lower now than they have ever been," he says, explaining there is a raft of good staff and undervalued assets becoming available in the sector.
Having spent his annual Christmas break dwelling on the possibility of the chills in the country's economic causing a "very boring year" for business, he decided to take advantage of the situation after growing the company organically for four years.
The bold and time-sensitive tactics had been learnt outside of the recruitment sector: "Scale up, have a plan. You're often interested in something, but you must go for it. Get the best people you can and get them excited," he says.
In the three years before Gilchrist acquired Interaction he worked as a finance director at Datamonitor, which made five acquisitions during his tenure. He then looked to buy his own business in a sector which "had the right focus on people", was understandable, sales focused and the right price.
Pondering the Kelly acquisition, Gilchrist believes Interaction's status as a private, debt-free company has meant it is well positioned to gain marketshare, while listed companies in the sector are forced to reduce headcount and close offices.
"Public companies have earnings targets and that has forced them to make knee-jerk reactions. We take decisions we want to take; we're not governed in the short term by City analysts," he says.
And that's what will allow the company to aggressively build its staffing base, he explains, just an hour after hiring another new recruit: "We know new staff members won't make any money in the first six months, but over the next two years they will. We are not thinking short term. If we think someone is right for the business we will take them on.
"In fact, the company's biggest constraint to growth is finding the right staff, according to Gilchrist, who says one of the biggest shocks he has had since buying the company is the lack of good consultants in the industry.
This made the staff from the Kelly Services branches the company acquired the greatest attraction to the deal. "The Kelly Services staff have been through quite an emotional roller coaster. It's important we approach this business and understand what they have been through," says Gilchrist.
In January Kelly Services announced it might have to cut its workforce by up to 350 employees (recruiter.co.uk, 29 January), six weeks before the terms of the purchase were agreed upon or the news being announced to employees.
As part of inspiring the team, Gilchrist and Richard Morrissey have given them as many "green lights" as possible, including basing consultants' commission on a monthly branch profit share and letting them plan marketing, recruitment spend and strategy.
"We met them and said, 'Your own branch is your own business now'." He wants his staff to target rival recruiters to join their teams: "Get the competition in. Tell them that we are growing."
Gilchrist saw the Kelly Services branches as a leap forward in building the branch network and headcount. However, the contract book and existing business is being treated with caution.
"We are being selective. There are certain clients we don't want to work with going forward and we have turned away business," he says, estimating the company would only retain 35% of an approximate £65m in turnover from the new branches.
Morrissey told Recruiter that existing clients had been dealt with on a case-by-case basis: "The initial overview is that we want to do a seamless transition, but it has to be viable business — some of the margins we are happy with and some are on the low side."
Increases to the statutory holiday entitlement on 1 April provided an opportunity to review prices across the board, he adds.
The aim is to ensure that the business Interaction is doing is "viable" for the future, in an industry both Morrissey and Gilchrist feel has had its profit margins pushed below realistic levels.
"Margins have gone below a sustainable level. As people start vacating the market, margins have to go up," Morrissey says, predicting the change would be "pretty quick" as funding for the sector is reduced. Where margins have increased Gilchrist hopes the company can offer clients higher levels of account servicing in return, including more management information.
The leases on the properties were "a lot less of a problem than originally thought" and the new locations are set to spark organic growth as the group looks to cross sell into the new geographical regions and target national customers.
"We are always looking at organic means to growing and this will help that as our specialist divisions, which include IT, finance, engineering, can now be sold across 40 offices and service national customers who may not have looked to us previously," says Gilchrist.
The show of strength through the Kelly Services acquisition and the positive news about jobs being saved has caused direct applications from consultants looking for opportunities. "People see us as a company that's investing and taking the plunge in the tough times. There are good candidates which might be disillusioned with their current company. The good people and the able people are confident in their ability to perform whatever the environment, provided they are given the support to do so."
Although branches are interviewing and selecting their own staff, Gilchrist and Morrissey meet every potential employee. The company is also planning to launch a procurement recruitment division and is currently looking for experienced personnel in this area. The company's acquisition strategy continues with the recent purchase of Northamptonshire-based industrial, office and transport recruiter activ8 for a "small cash consideration" and the company is looking for further opportunities in the marketplace.
When asked why now is the time for the business to shift gears and target a much greater share of the market, Gilchrist looks to his business hero Warren Buffett.
"He sells when others are buying and he buys when others are selling. I agree and, let's face it, Buffett doesn't get too much wrong. "This is the time for those with great balance sheets to press on."