I owe the bank loads of money. In fact, apart from a year long holiday back in 2014, I’ve owed the bank lots of money since 2004. Unlike our parents, the amount I owe the bank did not start high in 2004, dwindling to almost nothing today. Instead, I (believing I will live forever) have taken the opposite approach. The amount I owe the bank currently is almost the most I’ve ever owed them. And it will probably go up I’m sure.
Of course, I’m not alone in this. Our relationship with debt has changed since lending was invented around 3000BC. To summarise, it’s mostly been seen as a bad thing. Religions forbade it, the Romans made charging interest illegal, and the groups who partook in it were labelled a “necessary evil” – a tag that led to some major atrocities in 1930s Europe. But I digress. Debt, in recent years has had a fantastic PR job. It is no longer “sh*t you owe the bank a lot of money Sean!“. It’s now (or was) “sh*t you’re not leveraged enough Sean! Borrow some more money!”. Banks, as we all know, are more morally bankrupt than drug dealers. They f*cking love debt and they love those who are in it. It makes money all year round, no matter the market. As long as we all keep our heads just above water, they are in their sweet spot. Their flashy offices and terms like debt-to-equity make people like me feel like I’m winning in life. Instead of lying in bed worried about how much I owe, I toss and turn panicking that I haven’t borrowed enough. I’d be better off with a drug dealer currently. In the modern era, debt has been our friend. A measure of success. And to most, the secret to prosperity.
And it’s around this time that I should probably write something about recruitment. I noticed this morning whilst checking NZX announcements at 5.30am like we all do, that the Accordant Group have confirmed that the minimum raise of $5m for their renounceable rights offer is guaranteed. To those who missed it, or didn’t care, I’m referring to the story covered in this here blog. And if you’re too lazy still, basically Accordant (who own AWF, Madison, Absolute IT, Jackson Stone, Hobson Leavy etc) needed to raise at least $5m to pay down debt and keep the bank happy. They went cap in hand to their own shareholders, offering them new shares at half price. The founder, Simon Hull, put in $3.25m of his own money to get the ball rolling. If they didn’t hit the 5 mil, the bank wouldn’t extend their facility. Now we don’t know who did what, but as of yesterday, it is confirmed that they have raised at least $5m and will live on. Well hopefully not just live, but grow in a slightly improving market with $5m less debt to service each month. However, the announcement doesn’t say they’ve raised the money. What it actually says is that the majority shareholder will ensure that it does – regardless of what anyone else invests. On Sunday, we’ll get the full picture – if they only get to $5m with Hull’s money, it’s not a particularly optimistic view. If they reached the maximum investment of $6.7m, then there’s potential for a “market believed in us” story. We shall see.
Accordant Group are a victim of the times and culture that I suffer under. When the market is strong and my house is worth a lot, I just can’t f*cking help borrowing against it. Accordant Group did the same thing with a series of acquisitions. And all of these acquisitions looked reasonably sound. AWF was a leader in labour supply. They bought the leader in business support. They bought (one of the) leaders in tech recruitment. They bought the leader in government contracting. They bought the leader in exec search. None of these were duds. And based on market performance, the debt was easily serviceable I’m sure. Hell, they probably had banks at every street corner saying “pssst! Want another 10 mil for the weekend?“. Without sounding like a broken record, Accordant aren’t alone and actually find themselves in a better place than many. As per last week’s blog, debt (or “legacy liabilities”) has forced Hudson Australia into administration, with over $5m owing in unpaid superannuation alone. This is a company who have billed over a billion to the Aussie government in the last decade. And Adecco…now that’s a doozie. They put me to shame with their net debt sitting at 2.29 billion euros. So the picture globally is consistent: debt loaded on during the boom years, now a millstone as revenues shrink.
It’s not really the downturn that’s the problem. It’s the decisions we make during the boom. Us recruiters, having goldfish brains, do it all the time. Policies that sound great or slip under the radar when everything is going gangbusters will then invariably bite us on the arse when the market turns. Shall we look at some examples? Let’s! Look at how high some of your basic salaries are. Now you can’t hit your threshold and you’re waiting to be called into an office by an apologetic boss. Look where your laissez faire/we don’t care as long as you’re billing flexible working policies have got you? Look at the disappointed in your teams’ eyes when the big biller trip is Rotovegas and not Las Vegas. Look at that flash office with Bang & Olufsen speaker system that no one attends anymore. And the biggest one that any recruitment firm ever got across the line….the commission deficit model which of course won’t matter because you’ll always hit your target because everyone always does as that’s just recruitment so just sign there and welcome aboard thank you very much. We have, and always will, just gotten way ahead of ourselves.
Hopefully, we’ve turned the corner. I currently feel we have, but I have been wrong before. The difference is, this blog forces me to publicly demonstrate my errors. If I am right however, the irony is, those firms who borrowed the most, and flew almost too close to the sun, will probably come out on top. And so the cycle continues.
^SW
