Client Concentration and Master Service Agreements in a Staffing Agency Acquisition
Many staffing agencies are built around a handful of anchor clients: a distribution center that orders workers every week, a hospital system’s administrative department, or a technology company that relies on the agency for contractors. Those accounts can drive a large share of gross profit, and they can also end with little notice. Staffing agency client concentration is one of the first risks buyers and lenders evaluate, along with the master service agreements that govern each relationship.
This article explains in general terms how buyers may evaluate concentration and client contracts when considering an existing, operating staffing agency. It does not provide concentration benchmarks. Contract terms, assignment and consent questions should be reviewed with qualified attorneys, and nothing here is legal advice.
Measuring Concentration
Buyers look beyond revenue to gross profit by client, since a large account with thin pricing may contribute less than its billings suggest. Useful views include each client’s share of gross profit over several years, the trend for the largest accounts and whether one client’s demand depends on a single facility or project.
What Master Service Agreements Cover
- Term and termination: how long the agreement runs and how either side can end it
- Rate schedules: how billing rates are set and changed
- Assignment and change of control: whether a sale requires the client’s consent
- Indemnification and insurance: what risks the agency accepts and what coverage it must carry
- Conversion fees: what the client pays if it hires a temporary worker directly
- Payment terms: when invoices are due and how disputes are handled
Some clients work with agencies without a written agreement, or under purchase orders and supplier terms. Buyers should understand what governs each significant relationship.
Assignment and Consent
In an asset purchase, client agreements may need to be assigned, and some require consent. In a stock purchase, change-of-control provisions may still apply. Whether consent is needed, and how to request it without unsettling the client, is a question for counsel. Buyers and lenders may want key consents in hand before closing.
Third-Party Programs
Some large clients route orders through vendor management systems or managed service programs that sit between the client and its staffing suppliers. In those cases the agency’s position may depend on program rules, supplier rankings and fees, and the relationship may be harder to transfer or protect. Buyers should understand how much of the business comes through such programs.
Who Holds the Relationship
Large accounts are often managed personally by the owner or a senior account manager. If that person leaves, the client may follow. Our guide to staffing agency recruiter retention covers this risk.
How Concentration Affects Price and Structure
Heavy concentration can reduce what a buyer will pay or lead to structures that share risk, such as seller notes or earnouts tied to client retention. See our articles on staffing agency valuation and staffing agency seller financing.
What to Request in Due Diligence
- Billings and gross profit by client for several years
- All master service agreements, amendments and rate schedules
- Correspondence about pricing changes, disputes or program changes
- Receivables aging for the largest clients
Our staffing agency due diligence checklist covers the broader review.
How Lenders View Concentration
Lenders may look more closely at agencies that depend on a few clients and may ask how the buyer would manage the loss of a major account. Our article on staffing agency loan requirements explains what lenders frequently review.
US Professional Funding helps buyers finance the acquisition of existing, operating staffing agencies. Learn more about our staffing agency acquisition financing.
