Connecting to LinkedIn...


Staffing Firm On Assignment Widens Its Reach With Buy

Staffing Firm On Assignment Widens Its Reach With Buy

When a company spends as much on a single acquisition as it takes home in revenue every year, the deal tends to turn heads on Wall Street.

That can be a good thing or a bad thing, depending on how investors react.

For On Assignment , a professional staffing firm, it was a good thing. On March 21, the company spent $600 million to buy Apex Systems, a provider of IT staffing services.

At first glance, the purchase price looked a little steep for On Assignment, which provides consultants to clients in the information technology, health care and life sciences fields.

The company logged 2011 revenue of $597 million. It had less than $420 million in annual revenue only three years ago.

But Wall Street cheered the deal. On Assignment's stock price rose nearly 27% to a 10-year closing high of 17.32 on the day the buyout was announced. Shares climbed to 19.37 a month later and currently trade near 16.

'Attractive Price'

"We believe On Assignment purchased Apex Systems for a very attractive price. Apex's operational excellence should provide upside to expectations over time," analyst Paul Ginocchio of Deutsche Bank noted in a July 30 report initiating coverage on the stock.

The buyout was embraced in part because of the financial might it brings to On Assignment. Apex reported about $700 million in revenue last year. It earned $65 million before interest, taxes and other items. Its revenue has grown about 30% a year since 2000.

Equally important: The deal gives On Assignment a much bigger customer base.

"It gets the company more into the mainstream of the IT staffing market," said Randy Reece, an analyst at Avondale Partners.

Prior to the Apex buyout, On Assignment primarily focused on high-end IT consulting work through its Oxford business unit, he says. The company wanted to move into the mass market, but only if it could do so without having to slash its prices and margins.

The Apex deal lets them do that, Reece says. "It doesn't dilute On Assignment's operating leverage, and the company's gross margins are still good. It gives On Assignment a more sustainable growth trajectory than they would have had staying in the high-end niche of the staffing world."

The Apex unit has already made a big impact financially. It contributed $99 million to On Assignment's second-quarter revenue, which totaled $283 million.

Apex's top-line contribution was the most of any business unit, despite the fact the buyout didn't close until mid-May and added to results for only about six weeks.


Articles similar to

Articles similar to