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USG People announced today that it will be selling its General Staffing business in Spain, Italy, Austria, Switzerland, Poland and Luxembourg to Randstad subject to approval by the EU Commission. In 2012, the combined revenue of these activities was €434 million and the sale will net the company €20 million.
According to USG People, the sale of these relatively low-yield activities has an immediate positive effect on the profitability of USG People and supports its strategic financial targets. It also has a positive impact on the company's financing needs due to reduced demand on working capital. The sale of these business units to Randstad creates stronger market positions for the buyer and more effective scale providing the potential to unlock the potential of these business units better and to safeguard their continuity.
USG People revised its strategy in 2011 and now aims to mainly focus its attention on its existing leading market positions; to target investments on the expansion of high-yield concepts, such as USG Professionals; and to focus on markets where it can offer its stakeholders distinct added value and create sufficient scale to position itself in a leading and profitable way throughout the cycle.
The news comes a month after USG People reported a fourth quarter revenue decline of 11% and the sale of its energy brand for €39 million. In the same announcement, the company reported that its Spanish and Polish operations grew during the quarter but that Italy had declined.
Ben Noteboom, CEO of Randstad says: “This transaction offers Randstad an opportunity to increase the density of our network which is important for reaching our strategic targets. Randstad will become the number one player in Spain, Poland and Luxembourg, while we increase our market position in Italy and Switzerland. The transaction also enables us to access the Austrian market. The combined activities benefit both clients and candidates and offer development opportunities for employees.”
According to Randstad the acquisition included over 800 corporate employees and 189 offices. Randstad’s annual revenue in Europe amounts to € 1.2 billion (FY 2012). However, the consideration to be paid does not exceed the working capital of the activities in scope, and as such, the transaction is considered not material for Randstad’s financial position.
A spokesperson for Randstad this morning was reported as saying that “size matters”. According to Staffing Industry Analysts’ 2012 staffing firm rankings, Randstad is the second largest staffing firm in Europe after Adecco although the company has fallen further behind the market leader in recent years. The addition of the USG business units provides Randstad with a 3.5% uplift in European revenue, assuming no value is lost through the acquisition, which still leaves it in second place.
In the same ranking, USG People was judged to be the fourth largest staffing firm in Europe and today’s transaction will not affect its overall market position either, though puts fifth placed Hays a little closer to its rival.
Randstad claims it will benefit from significant cross-selling opportunities, such as the introduction of in-house services and the sharing of best practices and processes. Their focus will be on capturing profitable growth, client profitability, and optimizing delivery models. The transaction will be immediately accretive to Randstad’s earnings per share though is not expected to complete until June.
The stock market reacted positively to the news with shares of both the seller and buyer increasing. In early trading today, Randstad’s (RAND:AEX) share price was up 1.27%, still 8% below its 52-week high of €34.20, set on 8 March, 2013 but 21% above a year ago. USG People’s (NVUSG:AEX) share price was also up +2.95%, flat on a year ago and 9% below its 52-week high set on 2 May 2012.