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Adcorp grows in Asia

Workforce management company Adcorp is focused on building scale in its Asia-Pacific business as it evolves into a next generation & lsquo;master service provider’ or MSP.

As part of this drive it has acquired 100% of Labour Solutions Australia for R421m. Labour Solutions provides staffing solutions across blue and white collar roles to the agriculture, construction, mining, resources and transport sectors. 

The company is nine-years old, is managed by its founders and operates across the continent. 

Adcorp will settle the purchase consideration with a balance of cash (R252.6m) and shares (R231.6m).

Scale and geographic diversification count in the new world of workforce management where multinational clients are looking for a single company to manage their staffing requirements in a bid to cut costs and increase efficiency. This will not necessarily do away with smaller providers, but they will access the client through these mega & lsquo;gate-keepers’.

“The MSP space is worth an estimated $60bn annually,” says Adcorp CEO Richard Pike. “If you want to operate in this space you need global reach, you need a robust IT platform and you need balance sheet strength.”

Pike noticed the trend towards a centralisation of workforce management on a trip to London shortly after the global financial crisis.

He has focused on building Adcorp’s capacity to handle the demands of big multinational contracts. The investment did not seem to pay off. “I think South Africa was about 18 months behind the trend. But we are gaining traction. We run nine or ten MSPs in South Africa and a won a global client earlier this year, with another in the wings,” Pike says.

Adcorp is not alone. Other companies have realised that scale counts – or have quietly closed their doors – with the number of agencies having reduced from about 3 400 pre 2008 to 2 600 today. This trend will continue.

In the US and Europe the space is well occupied by companies like Manpower and Adecco.

Adcorp has partnered with Randstad Holding, the second-largest global staffing company which has reach into the US and Europe. “We are their channel to market for sub Saharan Africa.”

However Adcorp’s energy is focused on the Southern Hemisphere and emerging markets. “This is our area of expertise, and it is where our clients are,” says Pike.

In January this year it acquired Paxus, an IT staffing company in Australia which is a virtual mirror of Paracon, its IT business in South Africa. “This gave us a foothold in Australia and will complement Labour Solutions,” Pike says. Adcorp also owns 35% of Indian IT solutions firm Nihilent Technologies. The company is keen to spread further into the Asia Pacific region. Until a suitable opportunity presents itself it has a loose alliance with a triumvirate of companies operating in Japan, China and Singapore.

In Africa Adcorp owns ten businesses which focus on providing staffing solutions to the mining and resourcing sector. Further growth in Africa will be organic, Pike says.

Once the acquisition of Labour Solutions is complete Adcorp will earn 25% of its revenue from Asia Pacific and 15% from other parts of Africa. 

Vunani Securities small and mid cap analyst Anthony Clark has a slightly different take on Adcorp’s offshore investment. “Government legislation, led by union pressure might destroy their market in South Africa. Actions speak louder than words and my view is that they are looking offshore at other more employment friendly destinations. I wonder when the likes of Kelly and Workforce will follow.”

Two weeks ago the company reported revenues up by 41% to R5.7bn in the six months to the end of August 2013, and normalised earnings up 25% to R161.1m.

The share price increased 0.54% to R34.24 on the day.




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