Stuart Kilpatrick made the switch from chemicals to recruitment last month. While many might view that as a big change in direction, the new finance director of AIM-listed Empresaria Group plc sees it as a great opportunity for a new challenge.

Having previously crunched the numbers at FTSE small cap Elementis plc, Kilpatrick joins Empresaria at a time of big international expansion at the staffing business. And he believes the company’s growth model and the way in which it incentivises its own staff will play a big part in its success.

Since setting up back in 1996 Empresaria has mixed strong organic growth with an aggressive acquisition model that sought to balance its sector, geographical and operational mix.

Headed by chairman Tony Martin and chief executive Miles Hunt, it now has operations in 18 countries in Europe, Asia, Australia and South America trading through 49 companies.

Last year that strategy helped deliver adjusted pre-tax profits up 114% to £6.2 million on sales up 96% to £147.8 million.

Behind those figures it’s possible to see how the company’s eye for a foreign purchase has driven its strategy. While its domestic recruitment offering has grown well in recent years – indeed up by 20% in terms of revenue and net fee income (gross profit) in 2007 – the company has focused its main acquisition plays on growth markets in other regions.

Last year alone it made several investments in recruitment companies spread between the Netherlands, Chile, Japan and South East Asia. But by far the largest was a move to buy a 60pc stake in German firm Headway. That was a turning point.

With Headway, Empresaria now derives 50pc of its group net fee income from abroad. With more deals on the way, that figure is expected to be closer to 70pc next year. Back in 2005 it was just 3pc.

Broadly speaking the group’s international operations are split in two. In Continental Europe, where it has interests in Germany, the Netherlands, Poland, Slovakia and the Czech Republic, revenues jumped to £52.4m from £0.5m last year. Net fee income rose to £16.8m from £0.4m.

In the rest of the world, comprising Japan, South East Asia, Australia, India, China and Chile, sales grew to £14.2m up from £9.0m in the same period. Net fee income was up to £4.6m from £3.8m.

So what’s driving Empresaria’s expansion and where is the funding coming from?

First off, the company has largely shunned traditional clerical and industrial recruitment. Instead it focuses on permanent and temporary staffing positions across main five sectors: construction and property services, financial services, supply chain, public sector and other brands.

The thinking here is simply to out-perform the recruitment market by spreading its sector focus and not getting weighed down by a cumbersome clerical operation.

Second, its target markets are often where government staffing regulation is being tempered. This was certainly the case with Headway in Germany. Likewise, in Japan – where Empresaria invested in Fines KK last June – an easing of rules over temporary employment has been a boon for recruitment agency market entrants.

When it comes to funding, Empresaria has options. With Headway, where it paid around £9.9 million for the 60pc stake (it has an option to buy the remaining 40pc) a share placing was the order of the day. The company joined AIM in 2004 and has since made full use of its listing to raise cash and use shares to fund acquisitions.

With the other, smaller deals, which often take the form of start-ups, Empresaria rarely buys them outright. Instead it prefers to take a stake and bring the management into the business with a substantial retained shareholding. As a result the deal values are comparatively low.

For example, in May last year the company took a majority stake in Dutch firm EAR Holding BV, moving it into the Netherlands for the first time. To buy a 60pc stake in EAR, Empresaria paid €0.5m to existing shareholders plus €0.2m in working capital through the issue of new EAR shares. The €0.5m paid to existing shareholders included around €0.1m in new Empresaria shares.

It’s this approach – often replacing exiting shareholders – that Kilpatrick believes is where the company’s unusual model pays off. With a portfolio of businesses in a growing number of regions, keeping hold of the local management and aligning their interests with the rest of the group is essential. The technique often simply means leaving the business to operate as normal. Only if performances slip will the parent group step in.

And for the new FD it means Empresaria can move quickly and at a comparatively low cost to open up in new markets as and when it sees opportunities.

Indeed, the signs are that Empresaria is just watching and waiting for potential acquisitions to appear on the radar. With only one operation in South America (Chile) more deals there would make sense. Elsewhere, booming staff markets in South East Asia – buoyed not least by growth in China – are also likely to be targets.

By Ben Hobson, SmallCapNews.co.uk