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Singapore – Adcorp setting up Southeast Asian hub and planning to buy

31 October 2014

South Africa’s largest staffing firm Adcorp (ADR: JNB) is in the process of setting up its Southeast Asian hub in Singapore, with the ambition of creating one of the first recruitment firms “of consequence” in the region, reports financialmail.co.za

Adcorp’s Chief Executive Officer, Richard Pike, believes that the company has a two-to-three-year window to establish a powerful recruitment business in a region where the world’s biggest players have yet to gain a firm foothold.

Adcorp has scaled up its international business over the past three years, largely as a result of acquisitions in Australia. The company also has an investment in India and operates in 11 other African countries. It hopes to generate almost 40% of its profit from outside South Africa in its current 2015 financial year, from just 3% in 2011.

Mr Pike explained that more than half of the world’s workforce is expected to be in Southeast Asia within the next 30 years, but major US and European recruitment firms have so far failed to replicate their success in the region: “None of them have achieved what they’ve achieved in the US and Europe and that’s why I say it’s ripe for the taking.”

Adcorp is planning to create a regional hub in Singapore to raise capital to fund acquisitions across the region. The plethora of multinational head offices, in addition to the city-state being largely English speak makes Singapore the ideal location to build a hub. More importantly, however, is that Singapore holds the world’s third-deepest capital market.

Whereas Adcorp has historically made acquisitions with funding from South African (SA) investors, it believes raising capital from its Singapore hub would make more sense as its SA equity is undervalued: “What we’re looking to do with our Singapore hub is to create an umbrella structure for all our non-SA assets and hold them through Singapore.”

Adcorp’s price/earnings ratio on a normalised earnings basis sits as eight, whereas major international firms; such as Adecco, ManpowerGroup, and Randstad trade, “on average at about an 18.5 p/e”, Mr Pike explained.

Mr Pike believes Adcorp’s local share rating has been heavily weighed down by “question marks” around labour legislation, which he concedes could warrant the company’s shares trading at a discount.

With the plan to house the international business under the Singaporean umbrella, Adcorp hopes to attract the same kind of rating as its international peer groups.

Adcorp plans to tap into the speciality oil and gas sector, where it sees opportunities for cross-referred work between Africa, Australia, and Singapore.

While the company’s plans for Africa are more geared towards organic growth, its plans for the Asia-Pacific region are more aggressive with a view to buying established and successful businesses and with a preference for full ownership.

Mr Pike explained: “We will be acquisitive in Asia but we need to get our structure and our funding in place before we can embark on those acquisitions. We are quite well advanced in that — I would imagine that we would be in a position hopefully in the next six-to-12 months to look at achieving that objective.”

“Ultimately, the balance of the portfolio would be something like 33% Africa, 33% Australia, and 33% Asia — that’s kind of where we would like to be. And that implies in the Asia region our target is to get to USD 40 million – USD 60 million earnings before interest, tax, depreciation and amortisation and then you’re a player of consequence,” he added.

Adcorp’s push for international growth is a function of both opportunities abroad in an untapped market and growth prospects in SA being less bright. The company is in the process of fully acquiring JSE-listed Kelly Group (not to be confused with the US staffing company with the same name), its last major target acquisition in its home market.