Outplacement firms thrive as bankers lose their jobs

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Meridian, one of the City of London's leading outplacement providers, looked after as many redundant staff in the first half of 2001 as during the whole of 2000. Simon Davies, an analyst at ABN Amro who covers Meridian's parent Penna, says: 'Outplacement is clearly thriving.'

But while outplacement may appear the ultimate counter-cyclical service, its providers are not escaping the economic downturn without some sweaty palms of their own. These result from pressure on their fees, and a tendency by some employers to buy skimpier outplacement packages than they were doing when the economy was healthy.

Redundant financiers are most likely to be sent to one of three outplacement providers: the Penna Group, which includes financial services specialists Meridian and the more generalist Sanders & Sidney Fairplace or BG Careers.

In addition to these 'big three', other providers play a less significant role in rehabilitating financial services staff. These include Right Management Consultants, Coutts Consulting, Drake Beam Morin (DBM), Lee Hecht Harrison, Mark to Market and Cedar House.

Such providers are often favoured for niche assignments. For example, Mark to Market specialises in traders. DBM, which has offices in 45 countries, is often the preferred choice for ex-pats intending to receive outplacement back home.

Auspicious economic conditions mean that outplacement companies have been growing. In June, Fairplace acquired its fellow outplacement company and HR consultancy Quantum, gaining a new office in the City of London in the process.

In September 2000, Fairplace opened a new office in Canary Wharf tower.

Penna opened a second City of London office in October. Right Associates, Mark to Market and DBM have also all increased the space available for finance staff.

As a result, there is a danger that when the wave of redundancies is over, providers may be lumbered with excess capacity. 'Outplacement is a lumpy business,' says Davies at ABN Amro.

Outplacement companies have sought to protect themselves against this vulnerability by diversifying.

It is rare to come across an outplacement provider offering outplacement alone. When markets recover, space currently devoted to outplacement can be reallocated to one of several related services, among them career counselling, coaching or retention advice.

The Penna Group is typical of this diversified model. Having begun as outplacement provider Sanders & Sidney in the early 1990s, the group now provides outplacement alongside headhunting, change consulting, executive coaching and interim management.

Whitehead Mann is becoming similarly diverse. Earlier this month it announced the acquisition of the Baines Gwinner Group. Baines Gwinner's training and headhunting operations, as well as its outplacement arm (BG Careers), are now to run alongside Whitehead Mann's existing stable of headhunting, coaching, and management assessment services.

Diversification is not entirely driven by self-interest. Redundant staff could also benefit, particularly when the parent includes a recruiter.

Chinese walls between headhunters and outplacement consultants prevent people in outplacement from being funnelled into vacancies. But a recruitment arm is widely seen as making for better informed outplacement consultants.

Michael Moran of the Penna Group says: 'An outplacement company that has close links to a recruiter is far better placed to give its clients information on the job market.' Philip Beddows, a director at BG Careers, agrees. 'Headhunters are very good at giving us guidance and market knowledge,' he says.

This is important because there is, after all, rather more to outplacement than hand-holding. Once the initial shock at being made redundant has passed, outplacement providers must realise their true purpose finding their clients a new job.

To date this has not been too great a problem. Peter Murgatroyd at DBM's City office says that most clients are re-employed within three months. Meridian is more specific, pointing to a 75% success rate within a three-month period. But Linda Jackson, Meridian's managing consultant, admits that finding jobs is getting harder.

Unfortunately, this trend coincides with a reduction in banks' willingness to fund long periods of outplacement, as they trim costs. 'The trend is for shorter and shorter periods of outplacement. Between one and three months is now standard,' says Murgatroyd at DBM.

Prices are also under pressure. Outplacement may be booming, but increased profitability is not guaranteed.

Robin Allcock, managing consultant at Sanders & Sidney's City office, says: 'Outplacement was once a little known and price inelastic service. It was possible to charge almost what you liked.'

Allcock says that as outplacement becomes more familiar, the sector is increasingly competitive and increasingly commodified. The head of another outplacement firm confirms this: 'Prices haven't risen for five years. Competition means that people are pricing below what is sensible. We used to achieve pre-tax profit margins of 20%, but we're unlikely to get anywhere near that this year.'

Davies at ABN Amro, however, does not think that margin pressure is a particular concern at the moment. He says that margins at Penna's outplacement operations almost doubled from 14% to 25% between 1997 and 2001. Although there is margin pressure on large contracts, Davies says that this is offset by the advantages of increased turnover.

Nevertheless, the apparent disappearance of the City outplacement firm Navigation reflects the difficult nature of the sector. Set up in February 2000 by Richard Benson, a former DBM director, Navigation focused on the financial sector for less than a year before seeming to vanish.

Competition between the two diversified heavyweights looks likely to increase. Until now BG Careers has focused exclusively near the top end of the outplacement market. Under the auspices of Whitehead Mann, there is speculation that it may encroach on the upper-middle ground occupied by Penna. 'Whitehead Mann is now our main competitor in the City of London, without a shadow of a doubt,' says Moran.