(By Anthony Miller - Tuesday, 10th March 2009 6:15pm). I recently caught up with Gordon Stuart, previously CFO at Xansa and now likewise at Alexander Mann Solutions (AMS). AMS were the pioneers of recruitment process outsourcing (RPO) which, to all intents and purposes, is BPO where the ‘business process’ is recruitment. In other words, AMS takes over the recruitment functions of its clients, filling permanent and temporary positions directly from the marketplace or ‘agnostically’ through staffing agencies. Clients range across all the major industries from large IT firms such as Atos Origin, Capgemini, and CSC, through to banks, retailers, manufacturers and travel firms. Its most recent high profile win was in January at BAE Systems, where AMS took over the recruitment element of the HR BPO contract outsourced to Xchanging. Coincidentally, Stuart and Xchanging CFO Richard Houghton, both spent time at McKinsey. Stuart is also a NED at telecoms software player, Intec. AMS traces its roots back to a venture started in 1996 by now CEO Rosaleen Blair within the Alexander Mann Group – a traditional recruitment business originally founded in 1985 by James Caan (yes, the one who subsequently grew up to become a ‘Dragon’!). In the late 90’s, like many fast-growing companies, AMG wanted to join the IPO throng, but the Asian market crisis put paid to those ambitions. So in 1999, US-based private equity firm Advent International took a large minority stake for £25m, valuing the company (therefore) in excess of £50m. Caan left the business in 2002 and over the next few years the group bought and then sold a number of businesses. By 2007 it was left with the ‘jewel in the crown’, Alexander Mann Solutions. AMS’ last reported figures show revenues around £340m of which some £70m is net fee income (gross profit), generating around £9-10m of EBITDA.
In Dec. ’07, Advent sold AMS to Graphite Capital in a £100m MBO in which Graphite invested £50m for a substantial majority stake. Graphite has been involved in a number of other recruitment buy-outs, including such ‘blasts from the past still around in the present’ as PSD (now trading as UK-listed OPD Group) and TMP Worldwide.
Generally speaking, each client’s service is tailor-made, with most contracts typically 3 – 5 years. As well as working on-site at client locations AMS has also delivers services from off-shore locations such as Krakow in Poland and Manila in the Philippines. In addition, AMS has launched an ‘off the shelf’ RPO service targeted at the mid-market, for companies who only need to recruit 100-150 heads a year.
Though the core of AMS’ business is RPO, they also have a range of consulting services built around making the client’s recruitment processes more effective and efficient. These include resourcing communications (i.e. how you present yourself to market as an employer), operations consulting and ‘talent’ management. As best as we understand it, these are more viewed by AMS as ‘value-add’ activities, rather than, shall we say, meaningful contributors to the bottom line. At least, not yet.
We’ve always liked AMS’ business model as we think it is highly differentiated from traditional recruitment firms. Many players have tried to copy it but none have achieved anywhere near the scale as AMS. Although the 3% EBITDA margin doesn’t look that enticing, it’s perhaps not out of line with its 14% return on NFI. But where could the margin go? Well, UK BPO market leader Capita’s HR BPO business runs at 9% EBITA margins which, though not precisely comparing ‘apples with apples’, still makes you think there’s got be some upside, especially as AMS ramps offshore delivery. Indeed, finding the way to expand the margin will be crucial as Graphite and AMS management start thinking about an ‘exit’ when markets eventually turn favourable again. Till then, Blair, Stuart and the AMS team have, like everybody else, to fight even harder for their share of a diminishing market. I’ll let you know how they get on.
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