Podcast: Getting the Most of Your PEO Valuation with Tips from G&A Partners’ CFO, Jim Mack

In a recent podcast with Kirk Flagg, host of Insync PEO Podcast, Jim Mack shared five ways a company can improve its valuation even if they are not ready to sell to a PEO.

With several years of experience, Jim has found his way in, out, and around the PEO industry. “You get into the PEO industry – it's wild, and it's crazy and you kind of get tired sometimes but the itch always gets you to come back in the industry,” said Mack, G&A Partners’ CFO.

Kirk and Jim discuss Jim’s article in the November 2021 edition of NAPEO Insider, "The Changing Landscape of the PEO Industry Due to M&A" and the recent notable changes Jim has witnessed.

“There has obviously been a lot of attention from private equity getting into the PEO space,” said Mack. “It’s obviously a great investment because of the recurring income stream, the retention that clients have, the focus on small business – which is what drives the growth in America – and so as small business owners and small PEO owners, there are tremendous opportunities.”

PEO owners don’t sell their PEO out of nowhere and without maximizing their valuation first. Aside from cleaning up worker’s compensation, Mack states PEOs can do five big things to maximize their valuation.

  1. Source of Gross Profit – A majority of gross profit should be coming from admin fees.
  2. Sales Balance – Review the balance from where sales are coming from. It’s nice to see a blend where you have 50/50 or 60/40 internal sales and broker sales. Don’t put all your eggs in one basket.
  3. Operational efficiency – What are the statistics in terms of how many Worksite Employees (WSE’s) one person is handling?
  4. Systems – What systems are being used, are they locked and loaded, and how secure are they?
  5. Cost Structure – How clean is your Profit Net Loss (PNL)? Take a look at the company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

Later on in the podcast, Krik asks Jim about culture and Net Promoter Score (NPS) and if they are factors when looking at acquiring a small PEO, especially given G&A’s high NPS score and happy employees. Mack responds by explaining the NPS program G&A Partners uses to survey clients and alternatively the process G&A uses to survey its employees using Employee Net Promoter Score (eNPS). G&A uses the data from both surveys to ensure clients and employees are happy while addressing any issues.

“When we are looking at prospects from an acquisition standpoint, typically a lot of them are not using NPS because it involves a lot of work—it’s surveying clients—and a smaller PEO doesn’t necessarily do that.” Says Mack. “We do look at culture. We do talk to the management team. We do check out other sources that we can find. We might look at LinkedIn on some of the employees of that potential PEO that we’re acquiring. So we do look at culture. It’s very important.”

Jim Mack’s excitement with working with John Allen, G&A Partners’ President and CEO, is also a topic of discussion in this episode. Listen to the full podcast on Apple Podcasts or on Anchor by Spotify.