Why Headhunting Firms are Buying Each Other Up
Olga Yurievskaya
News of the acquisition by the FiveTen Group of the Russian subsidiary of Antal International has been the biggest recruitment news of the spring, and may well be the news story of the year - the deal is the biggest in the industry’s history. Graham Palfery-Smith, Global CEO of the FiveTen Group, told KO why his company had decided to get involved in the Russian market. Many have noted the huge growth potential on the domestic recruitment market in Russia, though despite this, international headhunting companies have so far chosen to stay away from the country. The FiveTen Group is an exception, though this shouldn’t come as a surprise – since its inception in 2006, it has gained a reputation for pursuing an aggressive growth strategy, having successively acquired the recruitment companies Greythorn (representing the IT sector), WH Recruitment and Marks Sattin (banking and finance – these two companies recently merged to form WH Marks Sattin), Laurence Simons (legal), EMR (sales and marketing) and Ortus (specialist HR).
The acquisition of Antal International Russia is thus the latest in a line of acquisitions by the FiveTen Group over the last eighteen months. The owners of the company are hoping for a quick return on this latest investment, and to see profits triple within 4-5 years. By 2011, the Group expects to have a turnover of USD 1 billion, and after-tax earnings of USD 300 million. Are they going to invest heavily in their new Russian asset?
How much are you intending to invest immediately in Antal? Or will you see how the land lies in the market, and work with the established business?
Our strategy is ‘buy –grow’. If we acquire a business, then we grow that business, and invest resources in it. Of course Antal is going to grow - in the next 12 to 18 months we are intending to invest in the region of USD 1-5 million, and expect to see growth of between 40 and 100%, which we would consider to be normal. The businesses that we acquired prior to Antal have on average witnessed growth of 38%; the lowest level was 11%, and the highest was 100%.
Why did you choose to buy Antal in particular? Did you consider any alternative companies to merge with?
Our experts had been studying the Russian market for a long time before we looked at Antal Russia. Apart from that, I had been familiar with the work of the company for a good while, as well as with the president of the company, Tony Goodwin, with whom I had discussed the possibility of buying the business even before the FiveTen Group appeared. Subsequently, when Tony Goodwin called me and said that he wanted to sell Antal Russia, I happened to be in the middle of launching the Five Ten Group, and we had already begun the process of acquiring other companies. So, at that time the deal didn’t go through. And now fortunately the chance for me to become involved in this business has come along.
How soon are you planning on recouping the investment you have had to make to launch on the Russian market?
Everything depends on how quickly our business develops. Usually we would reckon on five years. But it’s possible we’ll manage to recoup our investment in three and a half to four years.
Are you planning on making any other acquisitions in Russia? I
n Russia other well developed companies exist, but working with Antal is enough for us here at the moment.
Do you have any plans to change the way Antal works? It is after all no secret that the majority of recruitment companies who have joined your group specialise in having a narrow search field. Would it make sense to adopt a similar approach in Russia?
All the companies who joined the FiveTen Group prior to Antal were specialist recruitment companies across a range of sectors: accounting and finance, marketing, IT, legal, and specialist HR. Antal works within all these sectors in Russia, and we have no intention of changing anything. Moreover, we intend to take Antal’s experience and incorporate it in our other companies. But we also intend to support Antal so that the firm reaches the next level and doubles in size. We have the possibility of increasing the number of our staff, and in time opening new offices. We want to help Antal to take advantage of the huge possibilities that the Russian market has to offer. In addition, our group is looking at options to enter markets in other CIS countries, in particular Ukraine and Kazakhstan.
Do you think that our market will see the arrival of new western recruiters who so far have stayed away?
I’m sure that they are going to come. All major recruitment firms are looking at Russia and its rapidly developing economy. The only question is when they will make the decision to come. There is excellent commercial potential here, huge resources, and the people are great. Russians are excellent businesspeople. In the last five years this market has doubled, and it may reach USD 30 billion.
Is there much competition now between recruitment companies?
Competition in Russia is not as marked as it is in, say, New York or Sydney. Russia stands apart, because western companies treat it very cautiously, and because we never get any positive information at all about your country, my colleagues are apprehensive about doing business here. Many competitors say to me “You must be mad to want to do business in Russia!” to which I usually say “Yes, you’re probably right!” But for us such an attitude is to our advantage.
Could the Russian market witness big changes in the next few years?
In the last few years the shortage of candidates has increased, and our work has correspondingly become more complicated. It may be that there is a simple demographic explanation for why there are fewer candidates. I suppose India and Turkey are the only exceptions to this rule. In any case, we can’t do anything about how many people were born twenty years ago. According to data from the FiveTen Group, there will be a shortage of candidates, and in particular qualified specialists, both five years from now and fifteen years from now. This is a big problem for us, since we are in the business of trying to find candidates. As a result of these shortages, more and more of our clients are recruiting people from different towns and countries, and are also attracting specialists from non-core professions and specializations. As for us, we are now beginning to pay more attention to a candidate’s character and personal disposition: the recruiter’s craft is now to assess not only how experienced and qualified candidates are - these may be suitable for numerous companies - but also how their personal qualities may set them apart: in which type of corporate culture will the person feel most comfortable? Where will the person be able to work most effectively? Take the following example of the differences that can exist between corporate cultures. There’s the successful technology and services conglomerate General Electric. Its employees keep in touch with each other, despite great distances and different languages and cultures. At the same time, many other companies don’t have this same kind of communication. There are even examples of cases where a company has branches in the same city, but the employees have no idea that they belong to the same group. We ourselves strive to work exactly along the lines of the General Electric model. Recently we gave a big presentation in Moscow at which Antal employees could meet key representatives of our company from all over the world. Even our colleagues from Australia attended – despite the thirty hour flight to Moscow.
In such circumstances have the demands of clients greatly changed?
Candidate requirements are still considerably high, although sometimes we do try to persuade a client to hire a candidate who doesn’t have exactly the right kind of experience, but great potential, or we widen the search to include candidates from other industry sectors. Many of our clients now assess candidates over a short time – for example, on their work on a concrete project over a specific period.
In the west people are usually hired on a contractual basis, and there are large corporations whose entire staff work according to a contract. Of course, switching to such a model would not be suitable for all companies. Everything depends on the industry sector and prevailing trends. In some areas, working on a contractual basis will work very successfully, while in others, for example, in the legal sector, it won’t work as well. In any case, in Russia at the moment, working according to a contract is still something of a novelty, although many international players here in Russia are already considering hiring people according to such a model, and this may prove to be an effective means of alleviating the current shortage of staff. We ourselves intend to develop the contract model in Russia – Antal, for example, has already filled a number of such positions in the company Nokia Siemens Networks, and is planning on doing the same in other companies.
And how are clients reacting to the changes?
It varies. However, it has to be said that some clients are not planning for the long term. For example, one large auditing company during an economic upturn was taking on 500 graduates a year, but stopped hiring them altogether when the economy slowed down. Moreover, it takes three years to give university graduates a proper level of training. What happens is that, when a business finds itself again doing well, there are no qualified people around, because no one was hired three years previously.
This is a vivid and striking example of how some people are not looking ahead - our clients are to blame here. But one should also understand that as soon as there is a serious shortage of key groups of workers, salaries increase, along with the cost of our services.
What do you see as being the plusses and minuses of working on the Russian market?
Russia’s big plus is that it is a fast growing economy. Apart from that, the local labour market has well qualified staff, and many know English and other foreign languages. On the minus side, the Russian language is very difficult, and there is heavy bureaucracy – on a par with India’s. Another drawback is that there is negative information about Russia in the U.S. and Britain, though as I’ve said before, this is actually to our advantage.
What services of recruitment companies will be in maximum demand in Russian and internationally?
Our main service is staff recruitment. I’ve experimented with many things, but what I’m really interested in doing is what we’re established professionals at. And for us, that’s recruitment. There’s no need to complicate things. Specialist services were never a big part of the business anyway, and they are going to decrease even further in the future.
And do you agree with the idea of outsourcing staff?
From the point of view of the client, such a policy isn’t altogether appropriate. The head of a company shouldn’t fully transfer authority for staff recruitment to another firm. Those who
do work according to such a policy will in time find it more difficult to work in this market and find suitable staff. Outsourcing is an effective way of saving money only in theory.
What methods of staff search are the most effective today?
The most important thing is to have a global database. In one or two - probably two - years we will be the only recruitment business with such a global database. The FiveTen Group’s global database will be fully integrated in all our offices throughout the world, and will pool together all our information on candidates and clients across all fields, disciplines and geographical locations. We will be the first to create a database of this type.
Antal will help us to connect with good professionals from all over Russia, and we will be able to search here for professionals for work in the U.S., Europe – anywhere in fact. Our offices in other countries will also be able to connect with Russians working abroad, and, if necessary, bring them back to Russia.
Does Antal have such a database?
Yes, a unique database, which has been developed over fifteen years of working on the Russian market. We are intending to actively increase this database further, and connect it with our other databases all over the world.
How do you develop your databases?
We don’t buy from outside. All our databases are the result of the work of our consultants. As of today there are 642 consultants working for us, who are gathering information for the database from all over the world – from San Francisco to Australia. In addition, any candidate can go onto our website and register their CV in our database. All they have to do is visit our website and answer a few questions online which will establish which level of candidate they are. After this all the information on the candidate gets entered in our database.
Which search instruments widely used in the rest of the world could be introduced in Russia?
The most important thing is the work of the consultant. Everything else is a question of technical input. In Antal, for example, we use a combination of methods, including straightforward search, databases, personal contacts, press advertising, and Internet search engines. Our group places many advertisements in the media. However, everything depends on which methods are most effective in which country. So, newspapers are an excellent tool for hiring, say, schoolteachers in Britain. But in the sphere of IT, there would be no point advertising in newspapers. In the U.S. (although not, so far, in Europe) social networking websites such as Plaxo have proven to very effective search tools, and there’s no reason why they shouldn’t work well in Russia as well. Our Antal consultants have also used such sites. Communication between offices is also very important. Let me give you the following example: we’ve got an office in Brisbane (Australia). The head came to London to give a presentation, and to talk about working in Brisbane and about the town in general. After the conference, one of our London consultants flew out to Brisbane to work, and our London staff began recommending our Australian colleagues to clients. This all helps towards growing the business.
Graham Palfery-Smith – Career to Date
Year and place of birth: 1958, Portsmouth, U.K.
Education: Graduated in 1980 from the Cass Business School in the City of London.
Professional activity:
2006 – the present – Global CEO FiveTen Group
2004 – 2006 – Managing director of the British and Irish based company Robert Walters
2001 – 2005 – Independent consultant on mergers and acquisitions and corporate development
1985 – 2000 – Rose from manager to managing director at the company Harrison Willis
1981– 1985 – Recruitment consultant in the finance sector for Badenoch & Clark
Personal Information: Married with three children, likes driving sports cars and playing poker
The FiveTen Group – Company Profile
Year established: 2006
Specialization: Recruitment
Headquarters: Main office in London; 28 other offices in 13 countries
Turnover in 2007: USD 253 million
After-tax earnings in 2007: USD 72 million
Staff: Over 600 recruitment consultants across the globe