In an era of growing consolidation among recruiters, this latest deal brings together the 11th and 28th largest search firms in the U.S. Diversified Search, long reluctant to entertain investor offers, said the timing was right when a private equity firm came courting. Here’s an inside look at the deal and what it all means.
June 11, 2019 – M&A activity, with the support of private equity firms, continues unabated in the executive search industry. In the latest deal, to be announced later today, Diversified Search, backed by investment dollars from private equity firm ShoreView Industries, has acquired Koya Leadership Partners, one of the nation’s top search firms in non-profit and higher education. Financial terms of the deal were undisclosed.
With the combination of revenues and resources, Diversified Search and Koya will represent one of the largest non-profit and higher education practices in the executive search industry. The merger will also create one of the largest executive search firms in the U.S. marketplace, with combined projected annual revenue in excess of $80 million. According to Hunt Scanlon Media, Diversified checked in as the 11th largest search firm in the Americas, posting revenues of $60.1 million, a 16.2 percent increase from the year before. Meanwhile, Koya ranked 28th with revenues of $14.2 million, up 35 percent.
Katie Bouton, Koya’s founder and CEO, will assume the role of president of Diversified Search, joining the firm’s leadership team of founder and chair Judith M. von Seldeneck and CEO Dale E. Jones. Under the agreement, Koya will retain its own name and branding and will operate within the portfolio of Diversified Search companies.
“Culture fit has always been and remains a top priority as we continue on an aggressive growth strategy within our key sectors,” said Ms. von Seldeneck. “We believe that with Koya alongside us, we have a rare opportunity to build a unique model in today’s competitive environment.”
Koya’s specialization in mission-driven search, primarily with non-profit and higher education clients, complements Diversified’s own major education, non-profit, and arts & culture practices, as well as the firm’s healthcare services, board of directors, life sciences, industrial, and digital, media, entertainment, and sports practices. Diversified said that Koya’s strong track record of placing transformational leaders, leveraging cutting-edge capabilities in social media strategy and technology, and its unique understanding of the growing Millennial workforce also complement its levels of expertise. “We see Koya as a great partner to our existing business and, just as importantly, our culture,” said Ms. von Seldeneck.
A growing number of executive search firms have turned to the private equity sector for capitalization, among them Riviera Partners, Armstrong Craven, and ZRG Partners. In each case, the funding partnerships were not just about raising investment capital, but about securing strategic partners who could help lift the search firm to new and improved levels of service.
“We intend to be relentless in changing the perception and reality of retained executive search, leveraging technology and data to create efficiency, transparency and value to the market,” said Will Hunsinger, CEO of Riviera Partners, a recruitment provider that just completed a $25 million funding round with Kayne Anderson Capital Advisors and ROCA Partners.
“Partnering with Kayne and ROCA was not just about capital, but about having strategic partners with resources to support our aggressive expansion and continued innovation with the goal of fundamentally changing the way talent acquisition is done.”
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Mr. Hunsinger said he expects more deals to surface. “Without the financial wherewithal or proprietary competitive advantage, like data and technology, [unfunded search firms] will be unable to compete on their own,” he said. It was only last year that Riviera Partners named Mr. Hunsinger as its CEO.
Nick Holder, a director on the new investments team at Livingbridge, an independent specialist asset manager that invested in London-based Armstrong Craven five years ago, pointed to the growing global talent shortage, leadership succession planning needs and diversity in the workforce as lynchpins behind the increased appetite for investing in the strategic workforce planning space.
In the case of ZRG Partners, the firm recently exited one investment made four years ago in favor of completing a recapitalization plan with a new partner. During its first funding round the firm experienced a compound annual growth rate exceeding 38 percent and nearly doubled its number of offices from 13 to 22 around the world.
ZRG chief executive Larry Hartmann said he is looking forward to continuing his firm’s growth with an investor “that has significant capital to invest behind our proven core growth strategy in tandem with looking at strategic acquisitions to broaden our talent offerings.”
Michael Rubel, managing director at RFE Investment Partners, a lower middle-market private equity firm with a long history of investing in growth companies, said his firm is convinced that the human capital services market is ripe for disruption – and fresh thinking. His firm led the latest investment into ZRG.
Both Diversified Search and Koya Leadership Partners, founded by women, are recognized leaders in diversity and inclusion, and are known for their strong records of placing women and people of color in executive positions. The firms mirror one another in shared corporate values of respect, impact, innovation and goodwill, said both firms.
“We are thrilled to join with Diversified to re-imagine the impact a leading mission-driven executive search firm can have on our world,” said Ms. Bouton.
“Joining our firms will enable us to offer our clients deeper and broader services that meet the needs of today’s employers and workforce,” she said. “We are excited about the opportunity to expand our client service in the mission-driven field.”
Guided by the belief that “the right person in the right place can change the world,” Ms. Bouton founded Koya in 2004 to recruit talented leaders to mission-driven organizations. The Koya team numbers more than 60 professionals who partner with clients across the globe.
With over 20 years of experience in executive search and organizational development, Ms. Bouton has built senior leadership teams at leading national and international organizations and partners closely with founders, boards and donors to deepen the impact of today’s most pioneering mission-driven organizations. In addition to executive search, her areas of focus include leadership, retention and diversity initiatives. She has developed and executed professional development trainings on a variety of topics from leadership development to recruitment and retention best practices.
Largest U.S. Female Owned Firm
Headquartered in Philadelphia, Diversified Search is the largest U.S. female owned and founded firm in the executive recruitment industry. It has offices in Atlanta, Boston. Chicago, Miami, New York, San Francisco, Southern California, and Washington, D.C. Diversified is the U.S. partner of AltoPartners, an international alliance of 58 independent executive search firms that spans 35 countries across the Americas, Europe, the Middle East, Africa and Asia Pacific.
Ms. von Seldeneck is a noted pioneer in the search industry, and she has been identifying and placing senior-level executive talent around the country for more than four decades. During the course of her career, she has been recognized by the executive search industry as setting the standard for retained executive search and has been active on numerous public, private, and not-for-profit boards of directors.
Judee, how did this deal come about?
Over the years we have been approached by various investors who saw what value our firm brings into a portfolio, and who wanted us to be part of theirs. I have always said no. As you may recall I did sell the firm back in 1998, and subsequently bought it back in 2004. When ShoreView Industries approached us, I was, naturally, skeptical. But it’s a different time in the search industry — we are seeing consolidation and increased competition, and I felt this opportunity was worth exploring, because of what it could mean for us in terms of the future of the firm and its potential for growth. I wanted to make sure that Diversified Search was going to be fortified for the years ahead.
What about the timing?
The timing just felt right. The key part of the deal was that ShoreView emphasized, vociferously, that they were not operators and had no interest in being operators. They were not just investing in a search firm, they were investing in the people who make the search firm great. They understood our business model and simply want to be part of giving us the bandwidth to build on it more aggressively, to do what we do best on a much larger platform. Nothing has changed. Dale and I are still running the day-to-day operations of the firm, and we will continue to do so for many years forward.
How important was it to find a next-generation leader like Katie?
Every great company thinks about its next generation of leaders, and we are no different. After all, leadership is the name of the game, the biggest difference maker. In an ideal situation, you see where the quality, ability and talent are within your organization, and you nurture it and grow it and supplement it. We were extraordinarily fortunate to find Dale Jones in 2013 as our CEO, and we are always thinking about the future. It’s a key part of our growth strategy — talent is the thing that has gotten us to where we are. And certainly Katie Bouton represents the dynamism, energy and fierce intelligence you want in someone to build your legacy. The goal is to have your cup overflowing with great people. And ours is.
“I felt this opportunity was worth exploring, because of what it could mean for us in terms of the future of the firm and its potential for growth. I wanted to make sure that Diversified Search was going to be fortified for the years ahead.”
How will Diversified Search use the additional capital it will gain from its private equity investor?
Both ShoreView and firm leadership struck this deal to grow Diversified Search, and that is what we are doing. Our deal with Koya Leadership Partners is just the first of what we expect will be several such deals this year.
What’s next? Where is the firm going? What sort of areas will you be pursuing in the future?
We are currently talking to several other boutique firms across the nation. Some of those talks are pretty far along, others just beginning. It is highly likely that within the next several years we will be a firm that is twice or triple the size of what we are now. That means more talent, more resources, more depth to the bench and an even more competitive firm.
Following this recent acquisition of Koya, describe what your platform might look like moving forward.
Koya is an amazing firm and we are beyond thrilled to have them as part of the Diversified family. This deal will make our non-profit and education practice one of the most formidable in the search industry. We see other transactions serving the same function across our other practices. Just look at what our addition of BioQuest in 2016 did for our life sciences practice—today we are one of the major players in the biotech and device space.
Is this part of a roll-up where we will see more acquisitions coming from Diversified?
Yes. Diversified Search is about to undergo a major growth spurt.
ZRG Partners announced the completion of a recapitalization with RFE Investment Partners, a lower middle-market private equity firm with a long history of investing in growth companies. Rochelle Park, NJ-based ZRG’s current capital partner, Northcreek Mezzanine, is exiting the investment after four years. During this period, ZRG experienced a compound annual growth rate exceeding 38 percent and nearly doubled its number of offices from 13 to 22 around the world.
“We are excited about the next chapters of growth for ZRG as we continue our ascent to becoming an even more significant player in the global executive search market and broadening our offering to other areas of human capital services,” said ZRG CEO Larry Hartmann. “Our data-driven approach to human capital and our commitment to delivering seamless services around the globe with our highly collaborative team have been pillars in our growth strategy.”
What is the strategy for this growth? And do you have any concerns?
The strategy is simple: smart growth with key players to bolster existing practices within the firm that are already hale and growing organically. Obviously, we do not plan to, or want to, grow just for growth’s sake. It is vitally important to us that whoever we approach for possible additions fits into our culture and shares our values. That is first and foremost, even above the numbers. We have spent 45 years building a firm around tent-pole values of trust, respect, integrity, goodwill and excellence. They have been critical in our success and helped build our reputation as one of the most respected firms in the industry. I would never risk that. Ever.
Explain why you think we are seeing so much consolidation within the executive search industry.
In a good economy such as this one, the war for talent can get extremely competitive, especially in the C-suite. Search firms are beginning to see there is strength in numbers — that when you consolidate resources and teams, you each inherit each other’s long-standing client relationships and contacts, which only grows the business faster. Because networking and relationships are the engine of any search firm. So I think you’re going to continue to see consolidation for the foreseeable future. Stay tuned!
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media