A diversity certification does not have to be a roadblock to selling your staffing business. In the last three years, Momentum Advisory Partners has advised the shareholders of four diversity-owned and certified staffing companies in successful sales—none of the buyers were diversity-certified themselves.
For owners of diversity-certified staffing businesses, the question of how certification impacts a potential sale is one we encounter frequently. Does it help or hurt? Will buyers be concerned? What strategies can maximize value while addressing buyer concerns? This article draws on our direct experience to help you prepare.
What Is a Diversity Certification and Why Does It Matter?
A diverse supplier is a business that is at least 51% owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group. Common classifications include small-business enterprises (SBEs), minority-owned enterprises (MBEs), and woman-owned enterprises (WBEs). The definition has expanded over time to include businesses owned by LGBTQ individuals, veterans, and proprietors with disabilities.
According to the Census Bureau’s 2021 Annual Business Survey, approximately 1.24 million (21.4%) of employer businesses in 2020 were women-owned, 1.15 million (19.9%) were minority-owned, and 320,864 (5.6%) were veteran-owned. In Staffing Industry Analysts’ 2023 list, 239 firms in the US and Canada self-identify as diversity-owned—an increase of 33 firms from the prior year.
How Does Certification Open Doors for Staffing Companies?
Diverse owners undergo a rigorous process to gain certification through organizations like the Women’s Business Enterprise National Council (WBENC) or the National Minority Supplier Development Council (NMSDC). Certification opens doors to opportunities that might otherwise be challenging to secure—many corporations, government agencies, and enterprise organizations actively seek certified diverse suppliers.
The scale of supplier diversity spending is significant: UPS spends $2.6 billion annually with roughly 6,000 diverse suppliers. Google set a goal to grow diverse supplier spend to $2.5 billion. JPMorgan Chase has spent $11 billion with diverse suppliers since 2015. A common trend among large enterprises is setting goals of 5% to 20% of total procurement spending with diverse suppliers.
What Are Buyer Concerns When Acquiring a Diversity-Certified Company?
For buyers that do not hold a diversity certification themselves—which represents the majority of potential acquirers in the staffing industry—the primary concern is whether the certification will continue after the acquisition. This concern stems from the fact that certification requires at least 51% diversity ownership, which a non-certified buyer cannot maintain.
Buyers worry that customers who initially engaged with the company through supplier diversity programs may no longer see value in the relationship post-acquisition. This can lead to apprehension about customer retention, especially if the diversity certification was a significant part of the company’s branding and client acquisition strategy.
A significant amount of time, money, and effort goes into completing an acquisition from both sides. Because of this, buyers tend to be very skeptical and will highly scrutinize customer relationships and agreements when diversity certifications are involved.
What Strategies Help Sellers Address These Concerns?
Customer Outreach
Reaching out to key customers to understand how contracts would be affected in the event of a sale and loss of diversity certification is crucial. You may learn that maintaining the certification is not as important as having it when the account was originally obtained. Getting this clarity before going to market arms you with the information to address buyer concerns directly.
Refine the List of Potential Buyers
Staffing Industry Analysts’ 2023 Diversity-Owned Staffing Firms list identifies a number of organizations that have made and are looking for acquisitions. Targeting buyers that already hold a diversity certification eliminates this as a concern in most cases.
Consider Retaining Control
Although not ideal for everyone, selling 49% or less of the company to a non-diversity-certified business provides a liquidity event while retaining majority control and the certification. This scenario is more likely with a financial buyer (private equity) than a strategic buyer, as strategic acquirers typically want operational control. A joint venture may also be an option whereby majority control is retained and a strategic partnership is put in place.
A diversity certification should not be seen as a roadblock. For those considering a sale, the key is being prepared to address buyer questions and concerns before beginning the process. Being armed with clear information early increases a buyer’s confidence in pursuing the transaction further. Not being prepared to address those questions will only lead to further doubt.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal advice. Every staffing business sale is unique, and legal and regulatory requirements vary. Consult with a qualified attorney to address your specific circumstances.
Frequently Asked Questions
No. Momentum Advisory Partners has advised multiple diversity-certified companies in successful sales. The key is being prepared to address buyer questions about certification retention and customer relationships early in the process, rather than waiting for concerns to arise during due diligence.
In most cases, the certification will not transfer to a non-diversity-certified buyer because certification requires at least 51% qualifying ownership. However, this does not necessarily mean losing customer relationships. Many clients continue their relationships based on service quality rather than the certification alone.
Yes. Staffing Industry Analysts identified 239 diversity-owned staffing firms in the US and Canada in 2023, many of which actively pursue acquisitions. Targeting these buyers eliminates the certification transfer concern entirely and can be a strong strategy depending on your goals.
Proactively reach out to key customers before going to market to understand how contracts would be affected if certification is lost. You may learn that retaining the certification is not as critical as you assumed. This information strengthens your position when engaging with potential buyers.
Yes. Selling 49% or less retains majority control and the diversity certification while providing partial liquidity. This structure is more common with financial buyers (private equity) than strategic acquirers, and joint ventures are another alternative that preserves certification.