Hot hexagon is really flying high

15-Oct-2008

The City-based offices of Hexagon Human Capital serve as the command centre for a business built around attracting the high-fee-earning staff who have propelled the business straight into the number two slot in this year’s Hot 100.

One of the aims when the company was set up in 2004 was to foster efficiency, says chief executive and co-founder Jonathan Wright. “From the day we started we set some basic commercial parameters. We wanted it to be highly productive; we wanted top quality consultants that earned top incomes.”

To produce these kind of profit margins, Hexagon had to move away from the type of recruitment processing outsourcing (RPO) business that Alexander Mann Group, Wright’s previous employer, had grown into.

“It was quite a revolutionary business but there were things I didn’t like; RPO smacked of commoditisation. I looked at the margins Alexander Mann was making and I didn’t want to do it,” Wright told Recruiter.

He settled on executive search, which he felt would continue to provide high margins. “Executive search has been around for 50 years. You’re dealing with the captains of industry and they pay today roughly what they did 50 years ago.”

The placements have an average length of nine months, with executive search generating an average one-off fee of just over £60k, according to Wright. “It’s the blend of the two that gives us our high productivity and our high margins.”

The mix became more balanced after the acquisition of executive search firm Archer Mathieson in August 2007. Originally generating 78% of its turnover from executive search, six months after buying the company this percentage dropped to 48%, according to independent investment research company Equity Development.

To attract and retain talent that could generate the kind of fees Hexagon was targeting, it put in place comprehensive reward schemes. The entire management team is heavily incentivised in the equity of the company and 75% of the fee earners have shares of some kind. The 13 senior executives who don’t sit on the board stand to split £12.5m in equity over the next three to five years — if they hit budget — in motivational pay-outs which Wright refers to as “serious, house-buying retirement money”.

Wright says the commission structure is reflective of the kind of talent the company wants to bring on board. “Our remuneration plans are very attractive; we are an upper quartile payer. Those people at the lower level of their consulting career will enjoy very good remuneration plans, and as they become more senior they will progressively come into more equity.

“If you’re a sales consultant and you can come on and earn £400k a year, you probably want to join that group, and that’s why we attract outstanding talent.”

The earnings potential has allowed Hexagon to appoint highly experienced staff to consultant-level positions. “We just attracted a former HR director of a significant organisation and a partner from a major sales firm. They come in as client directors, or consultants in anybody else’s language,” says Wright.

In 2006 Hexagon acquired BIE Interim Executive, a company that epitomised Hexagon’s focus on staff productivity. The company had created a marketing-led approach that allowed staff to bring in fees of over £1m a year. “When we bought the business it didn’t make any sales calls — I always joke that we don’t receive a phone bill,” says Wright, who adds that the company spends between £500k and £1m a year on marketing.

Within the separate business entities, Wright has refrained from monitoring standard key performance indicators such as call rates and interviews, allowing staff to manage their areas of the business and rewarding them solely on performance.

“My directors are very autonomous and empowered. What they need me to do is attract talent and to grow the business and find acquisitions — they run their businesses day to day.”

The approach has led to a range of cultures within the company’s subsidiaries. “Oxygen is as traditional a search firm as you could find and Roberts & Corr is as innovative a search firm as you could find, yet on a recent very senior assignment in Europe, Oxygen got the research from Roberts & Corr — you have that sort of collaboration opportunity in this business.”

Hexagon is now moving into its second stage of development and aims to take advantage of this kind of expertise sharing. “Up until now we have done very little [in terms of sharing best practice]. Stage one was putting the foundations in place. Now we have the opportunity for Hexagon to start to extract common practices, data, customer bases and have common go-to-market strategies. We can definitely get more money out of these businesses,” says Wright.

Like many recruitment companies, Hexagon’s share price has suffered as the economic climate worsens. However, the nature of its highly experienced management team, combined with a growth in demand for interim management and a high profit-per-employee ratio, should mean it continues to generate the kind of fee incomes that have propelled it into the upper echelons of the Hot 100.

“Search and interim management are good in a recession. People still need to sort their problems out and interim management is one way of doing it without bringing in lots of employees,” says Wright, who feels the company’s current share price isn’t reflective of its defensive position within the market.

“You’ve already recognised us as one of the most highly productive businesses, with the highest margins in the sector, and we are the market leaders in interim management. My management team get frustrated when that isn’t recognised but the market won’t recognise it in the stock value; you can understand that.”


Hexagon Human Capital: Company history

• Founded in 2004 by Jonathan Wright and Dr Swee Lip Quek 

• Acquired BIE Interim Executive in December 2006 for £11m, with earn-outs of up to £9m 

• Listed on the Alternative Investment Market (AIM) in February 2007, at 165p per share 

• Acquired Archer Mathieson in August 2007 for £6.6m, with potential earn-outs of up to £10.9m 

• Share price on AIM 75.5p, at time of going to press


A snapshot: Jonathan Wright

• Co-founded executive search recruiter TSI Group in 1986 

• Worked as a non-executive director for a portfolio of firms of private equity company 3i Group from 1990-93 

• Joined Alexander Mann Group as managing director in 1993, overseeing a turnover growth from £1.25m to £104m in just over 10 years 

• Launched Hexagon Human Capital in 2004 

• Also a non-executive director of IT recruiter Spring