The global staffing sector has seen a pickup in takeover activity
The global staffing sector has seen a pickup in takeover activity in recent months as companies look to speed up growth by expanding into new geographies and niche businesses.
Boosted by strong earnings over the past few quarters, staffing companies have been buying small firms in emerging markets or sizable businesses in markets such as the United States.
Recent concerns over a slowdown in the economy may not stop the flurry of deal activity, according to analysts and bankers. Most staffing executives say they don't see a second recession around the corner.
"Despite negative economic news, both financial and strategic buyers continue to actively seek acquisitions," Al De Bellas, president of staffing investment banking firm De Bellas & Co, said in a research report this week.
Acquisition activity is set to increase as more prospective sellers report several consecutive quarters of improving revenue and margins, the report said.
"There are buyers who are absolutely looking to continue to expand both their service offerings and geographical footprint," said John Niehaus of investment banking firm Growth Capital Partners. "That is going to drive more acquisition activity."
Morningstar analyst Vishnu Lekraj identified Manpower, Adecco, Robert Half International Inc, Kforce, AMN Healthcare and Cross Country Healthcare as potential acquirers.
Alternatively, Kforce and Cross Country could be targets, along with Kelly Services, he said.
Lekraj and other industry experts foresee a large number of small deals in the sector and only a handful of big deals.
Last month, Netherlands-based Randstad Holding said it would to buy U.S. peer SFN Group Inc, formerly called Spherion, for about $710 million in cash to become the third-largest human-resources services provider in North America.
Rival Adecco, the world's largest staffing company, said last month it would buy U.S.-based Drake Beam Morin for an enterprise value of 149 million euros and was looking for more bolt-on acquisitions.
"It's a very fragmented market and for the major players, including us, we're going to continue to look for opportunities to build our business both organically and through acquisitions," Tig Gilliam, who heads North American operations for Adecco, said last week.
"There is a lot of acquisitions in our space and there will continue to be," Gilliam said.
WHAT IS ATTRACTIVE?
According to the report issued by De Bellas, 18 deals related to staffing, IT services and human resources outsourcing (HRO) were announced in the second quarter, up from the 16 in the first quarter.
Deals involving HRO companies increased significantly, the investment banking firm said.
The report found that deal-making in IT staffing and commercial staffing has slowed from the first quarter. Strategic buyers have been more active than private equity, and cross-border deals so far this year have already outpaced the totals in 2009 and 2010.
Smaller deals were more common in the second quarter. The median revenue of target companies was $22 million, down from $141 million in the first quarter but still well ahead of the median acquired revenue in the years 2004 through 2009.
Growth Capital Partners' Niehaus said he was seeing a lot of interest in professional staffing such as IT services, financial and accounting, healthcare and legal.
Depressed valuations of staffing stocks could also prompt more deals. The stocks are down significantly from their highs earlier this year.
Manpower is trading about 40 percent below its February high.
"Now that we have buyers that have acquisitions as goals for themselves, a lot of sellers would try to take advantage of that before the end of next year," Niehaus said.