In the second biggest share placement in Japan this year, the country’s largest staffing company Recruit Holdings (6098: JP) made a strong debut today, closing up by +7.4% at JPY 3,330 (USD 31.17), against an initial offer price of JPY 3,100 (USD 29.02). At its peak, Recruit Holdings’ shares were trading at JPY 3,455 (USD 32.35) each.

Based on its current share price, Recruit Holdings has a market value of JPY 1.9 trillion (USD 17.8 billion).

The company’s debut is more impressive considering the -2.2% drop in the Nikkei 225 over the course of the day, and the number of IPOs in the Japanese market that have failed to meet expectations during 2014, so far.

Recruit initially aimed to raise JPY 90 billion (USD 842.6 million) through the sale of new shares, priced at JPY 2,800 (USD 26.22) per share. Current shareholders also sold an estimated JPY 100 billion (USD 936.3 million) worth of existing stock. Recruit estimated that the IPO would give the company a market value of up to JPY 1.6 trillion (USD 15 billion) so must be delighted with the outcome.

Recruit announced its intention to become the largest recruitment firm in the world by 2020. Approximately half of the IPO funds will be invested in further acquisitions, with the other half paid to existing shareholders. 

Despite the strong performance of the company’s share price throughout the day, some have urged caution, suggesting that the company may be overvalued.

According to the Wall Street Journal, “…assuming full exercise of the IPO’s overallotment option, the company is now valued at 29 times earnings for its last fiscal year, which ended in March. That’s a tech-like valuation for what is mostly a recruiting agency. Against earnings over the same period, global peers such as [Switzerland’s] Adecco, Netherlands-based Randstad, and ManpowerGroup of the US are trading at an average multiple of 18.4.”

Citing research from Staffing Industry Analysts, Reuters reported, “[Recruit] has over 100 human resources affiliates, roughly evenly split between Japan and overseas. But the global staffing market is highly fragmented and in terms of just staffing-related revenue, Recruit ranked [fifth] in the world in 2012 with a 1.5% market share. That compares to 6.5% for Adecco...”

“The bigger market cap for Recruit may lie in its higher profit margins. Its margin for earnings before interest, taxes, depreciation and amortisation in the last financial year was 15%, compared to around 5% for Adecco.”

“Recruit made JPY 1.2 trillion (USD 11.2 billion) in operating revenue in the past financial year, an increase of +13.6%; net income, however, declined by -9%, as operating expenses increased.”