SI Review: December 2012

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Expert’s Corner

A Busy M&A Bazaar

What buyers, sellers are looking for in 2013

By Theo Vadpey

The great number of firms in the fragmented U.S. staffing industry makes M&A activity a common occurrence. In fact, data from our 2012 annual Staffing Company Survey show that one in three staffing firms made at least one acquisition in the last three years.

And it’s been an unusually busy year. In July 2012, we noticed that the number of publicly announced M&A deals was up significantly from a year ago. We reported 34 publicly announced deals, up from 22 in the first half of 2011. Our monthly Pulse Survey also showed an uptick in firms reporting having closed an acquisition — in May and June 2012, 4 percent of firms reported closing an acquisition, well above the trailing 12-month average of 2.8 percent.

Noting the uptick in M&A interest, Staffing Industry Analysts took a look at the acquirers and came up with four interesting interpretations to help you make M&A related decisions in 2013.

  1. What temp segments are hot? According to our recent survey data — which includes 128 unique staffing firms that made acquisitions in the past three years — the healthcare and IT segments topped the list of desirable temporary staffing segments, accounting for nearly half of respondents’ stated preferences. About 20 percent of respondents expressed interest in commercial staffing. Interestingly, while legal staffing accounted for 12 percent of publicly announced acquisitions in the first half of this year, very few survey respondents — 0.6 percent — expressed interest in making acquisitions in this segment.
  2. What other staffing services are in demand? Companies also indicated some services areas aside from temporary staffing they might be interested in acquiring. Direct hire topped the list by a wide margin, representing the preferences of 20 percent of respondents—other areas of interest included solutions/statement of work (SOW) consulting (7.8 percent), RPO (6.3 percent), and MSP (5.7 percent).
  3. Latest valuations. Of 33 companies that shared with us the average price-revenue multiple they paid for companies acquired in 2012, half of respondents reported paying 0.6x revenue or less. Nearly 20 percent of respondents reported paying 0.2x revenue or less. Of interest, while the distribution of price-revenue multiples was skewed to the right (lower valuations were more frequent), the distribution of price-EBITDA multiples of acquired firms was fairly uniform (the median price-EBITDA multiple was 3.0x among our respondents).
  4. An advisor is uncommon. A majority, 60 percent, of firms in our survey did not consult any advisor whatsoever in their acquisition process. Ten percent, however consulted a lawyer, and another 10 percent did consult an M&A advisory specialist.

So what does this mean for 2013? Where is M&A going? Jon Osborne, vice president, research and editorial, at Staffing Industry Analysts, says the current interest in M&A is no fluke: “M&A activity has historically been correlated with the overall health of the staffing industry, and the industry is doing pretty well right now. Each year we put together a list of staffing firms who are seeking target acquisitions, to help buyers and sellers meet up. This year we had 162 staffing firms join the Acquirers list, up from 91 in 2011 and 119 in 2010. Interest in M&A is strong.”

Theo Vadpey is a research assistant with Staffing Industry Analysts. He can be reached at tvadpey@staffingindustry.com

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