Recruitment * A Private Equity Perspective

Report
Recruitment – A Private Equity
Perspective
Chris Harper
Managing Director
Baird Capital
About The Presenter
Chris Harper
• 25 years within private equity
• Managing Director at Baird Capital
• Significant experience of investing in the recruitment sector:
2
Baird in the Human Capital and
Recruitment Sector
A group-wide sector focus
Private
Equity
Investing
Human
Capital
Analysts
Investment
Banking
Research
M&A
3
Human Capital Services Focus
HR Outsourcing Services
HR Technology
Unparalleled Experience
• Dedicated coverage of all
major human capital sectors
―
Staffing
―
HRO/BPO
―
RPO
―
PEO
―
Payroll
―
Benefits Admin.
―
Recruiting
―
HR ERP
―
Corporate Training
Baird’s HCS
Platform
(1)
Corp.
• Transaction Experience
―
Over 80 M&A and equity
transactions since 1995
HR Professional Services
1) Illustrates select, relevant market participants.
4
Experienced and Dedicated Research
Mark Marcon
Current Coverage
Senior Research Analyst, Human Capital Services
•
Over the past 12 years, focused on
building the leading position covering the
Human Capital Services sector
•
Prior to joining Baird, spent six years with
Wachovia
•
Publishes Human Capital Services Metrics,
Analysis, and Perspective on a monthly
basis (“HCS MAP”)
5
A Long History and Commitment to
the Human Capital Sector
Track record of successful transactions provides access to, and credibility with, the global buyer group
Aug. 2001
$32,600,000
$27,600,000
Common Stock
Initial Public Offering
$114,000,000
$80,500,000
Common Stock
Acquisition of
Business Computer
Services Inc.
(d/b/a Pay America)
$94,400,000
Common Stock
Initial Public Offering
Sale of
Sale to
Sale to
Undisclosed Value
Sale to
Sale to
Follow-on Offering
$205,600,000
$55,900,000
$850,000,000
Undisclosed Value
$89,700,000
Common Stock
$68,700,000
$1,980,300,000
Common Stock
Sale to
$24,900,000
Common Stock
Sale to
to
Initial Public Offering
$32,900,000
$439,000,000
$1,922,900,000
$113,900,000
Sale to
Acquisition of
Sale to
Acquisition of
1998
1999
Follow-on Offering
$174,000,000
Private Placement
$20,000,000
Undisclosed Value
$600,600,000
Undisclosed Value
Acquisition of
Sale to
Acquisition of
Sale to
sm
1997
Undisclosed Value
Sale to
2000
2001
2002
2003
Undisclosed Value
Undisclosed Value
Undisclosed Value
Sale to
Sale to
Sale to
2004
2005
Project Capital
HR Outsourcing Services
Sale to
$65,625,000
Common Stock
Initial Public Offering
$60,000,000
$200,000,000
A Portfolio Company of
A Portfolio Company of
Sale to
Sale to
Undisclosed Value
$40,000,000
$233,480,000
$100,000,000
$97,300,000
Undisclosed Value
Acquisition of
Sale to
Acquisition of
Significant Investment
by
Undisclosed Value
Undisclosed Value
Sale to
$54,400,000
(Advisor to Minority Shareholders)
Co-Advisor
$21,000,000
$431,300,000
$226,366,046
Common Stock
Sale to
A Portfolio Company of
Follow-on Offering
Undisclosed
ValueValue
Undisclosed
Undisclosed Value
Undisclosed Value
$50,000,000
®
Acquisition of
A Portfolio Company of
a Portfolio Company of
a portfolio company of
Sale to
sale to
2006
A Subsidiary of
Sale to
Sale to
Acquisition of
2007
2008
A Portfolio Company of
Acquisition of
Sale to
2009
2010
6
Sale to
2011
A division of
Sale to
2012
Annual Business Solutions Conference
Over 700 total attendees, with 850 one-on-one meetings held
Selected 2012 Conference Attendees
2012 Key Statistics
19
Number of years Baird has
hosted its Annual Business
Services Conference
71
Number of companies
presenting at the conference
194
Institutional investors in
attendance
183
Private equity sponsors in
attendance
7
Private Equity: A Quick Guide
•
•
•
•
•
There is a large and diverse pool of private equity investors from venture (SEP)
through mega buy-out (KKR)
PE funds are increasingly offering differentiated strategies:
– Sector, geography, size, turnaround, buy and build. etc…
– But all have the same goal. To deliver strong returns to investors.
Investments are usually made from a 10 year fund
– Invest in first 5 years, realise before end of year 10
– Capital commitment from pension funds or similar seeking superior returns
– Commonly 5% of pension assets in PE funds
Performance is measured through IRR and money multiple
Key points:
– Life of funds and performance measures: dictates goal to exit within 3 to 5
years
– Superior returns sought by investors in private equity funds:
• 5% per annum above risk free
• 1.5x to 2.0x money multiple
– Private equity seek to invest in businesses which can deliver good returns
within reasonable risk boundaries
• 2.5x money multiple
• 30% IRR
8
Key Drivers of Returns
• Enterprise Value (EV) growth
• Profit growth
• Multiple arbitrage
• Cash flow
• Yield
• Debt reduction
• Refinancing
9
What makes the recruitment sector
attractive to Private Equity?
• A business where
shareholders are open to
investment
• Large number of
recruitment businesses led
by hungry smart people
• Is capable of doubling in
value over 4 to 5 years
• Proven ability to grow
profits (cycles allowing)
• International growth
• Operationally geared
• That could be made
attractive to a buyer at the
time of exit
• Business capable of
dominating a niche
• Good history of M&A,
secondary and IPO markets
providing exits
10
The evidence: some of the investments
11
Key Investment Criteria
•
•
•
•
•
•
•
•
Where we are in the cycle
Valuation
Availability of debt
Management hunger, alignment, depth and
capability
Credible growth story
Positive market dynamic
High quality company
Clear exit potential
12
Investment Considerations
Geographic footprint
Activities, sector
coverage & focus
Scalable and
repeatable
Client dependency
Can I make a
return out of
an
investment
in this
business
Quality of earnings
Contract vs Perm
NFI, margins,
profits, flexibility
Management
Growth left
‘on the table’
13
Valuation
Primary drivers are profits and scale:
EV / 2013F EBITDA
Medium sized players trade at a
premium compared to the
smallest tier…
14x
We observe more diversity in
majors’ ratings – but overall they
benefit from higher ratings
Michael Page , £1,154m,
13.6x
13x
The smallest listed
players are rated the
lowest…
12x
Power trend
line
11x
10x
EV / 2013F EBITDA.
•
Robert Walters , £127m, 9.2x
SThree , £318m, 9.2x
9x
Prof f ice , £177m, 7.9x
Randstad, £4,885m, 9.0x
Hays , £1,298m, 8.8x
Brunel , £590m, 8.2x
8x
CDI Corp., £203m, 7.5x
Amadeus Fire , £124m, 6.8x
7x
6x
Adecco , £6,631m, 8.7x
Robert Half , £2,192m, 8.5x
Netw orkers International ,
£43m, 5.8x
InterQuest Group , £18m, 5.8x
On Assignment , £589m, 6.1x
Matchtech Group , £59m, 5.4x
5x
Staf f line Group , £60m, 5.1x
4x
Harvey Nash, £38m, 4.3x
Manpow erGroup, £2,033m,
6.0x
USG People, £557m, 5.9x
Kelly Services , £377m, 5.2x
Impellam Group , £164m, 3.6x
3x
10
Source: Mergermarket, DC Advisory
intelligence
100
EV (£m)
14
1,000
10,000
Select Sector Transactions
(currency in millions)
Target / Acquiror
The Agency Staffing (US)
Groupe Crit
Intelligence Holdings (JPN)
Temp Holdings
Healthcare Locums Plc (UK)
Toscafund Asset Management
Cross Country Healthcare (Clinical
Trial Services Division (US)
ICON Public Limited Company
USG Energy (nka Redwave) (NL)
Rabo Capital
CHG Healthcare Services (US)
Ares Management / Leonard Green
TMC Group NV (NL)
Gilde Buy Out Partners
Air Energi (UK)
LGV Capital
Insight Global (US)
Ares Management
NES Global Talent (UK)
AEA Investors
Pinstripe (US)
Accel KKR LLC
Fircroft (UK)
Equistone
Talent2 International (AUS)
Allegis Group
Apex Systems (US)
On Assignment Inc.
Star Group BV(NL)
Parcom Capital
SFN (US)
Randstad NV
Aston Carter (UK)
Allegis Group
Comforce Corp. (US)
ABRY Partners LLC
Announced
Date
Target Business Description
Enterprise
Value
EV /
Revenue
EV /
EBITDA
N/A
N/A
0.9x
7.0x
July-2013
Provider of staffing solutions for technical, professional, admin, and industrial sectors
N/A
Mar-2013
Provider of clinical trial services including contract staffing and permanent placement
¥68,000
Feb-2013
Provider of temporary and permanent staff to the healthcare and social care sectors
£39
0.2
N/M
Feb-2013
Provider of contract staffing and permanent placement to the healthcare industry
$56
0.9
N/A
Feb-2013
Provider of personnel for the onshore and offshore energy industry
€80
N/A
N/A
Oct-2012
Provider of healthcare staffing services
c. $1,000
N/A
Oct-2012
Provider of specialist staff to the technology, ICT and construction sectors
£54
1.2
7.7
Oct-2012
Provider of contract, project, and staff hire personnel to the oil and gas industry
c. £85
N/A
c. 8.0
Oct-2012
Provider long term, short term and temp-to-permanent technical staffing services primarily
for IT professionals
$810
1.2
10.5
Oct-2012
Provider of staffing and engineering services to oil and gas and engineering sectors
£234
0.5
10.0
Aug-2012
Provider of pure-play recruitment process outsourcing
$50
1.3
8.8
Jun-2012
Provider of technical recruitment services principally to the oil and gas industry
£140
N/A
7.7
May-2012
Provider of human resource advisory, payroll, recruitment and learning services
A$142
0.4
6.4
Mar-2012
Provider of IT staffing and workforce solutions
$600
0.9
9.2
Nov-2011
Provider of staffing for offshore and marine projects in the oil and gas and power industries
N/A
N/A
N/A
Jul-2011
Provider of staffing services to a vast range of industries in the US and Canada
$771
0.4
11.2
Feb-2011
Provider of recruitment and staffing services with a focus in consultancy, finance and IT
c. £100
0.4
8.0
Nov-2010
Provides outsourced staffing management and staffing solutions to large employers
$154
0.2
9.0
0.7x
0.7x
8.8x
8.8x
Mean
Median
_____________________
Source: MergerMarket, CapIQ, Company filings and press releases.
15
c. 10-11
Private Equity Valuations
Date
Company
Vendor
Buyer
EV
EV/EBITDA
Dec-12
Oct-12
Oct-12
Jun-12
Jul-12
Feb-12
Jul-11
Nov-10
Jul-10
Jun-10
Nov-09
Dec-08
Nov-07
Jul-07
Mar-07
Sep-06
SR Group
NES
Air Energi
Fircroft
Nurse Plus
Pertemps
Red Commerce
Pulse
Teaching Personnel
ICS
FDM
Air Energi
AMS
Teaching Personnel
Aston Carter
NES
Founders
Graphite
Palatine
Founders
Founders
Founders/AIM
Inflexion
Hg
RJD
Inflexion
P2P
Founders
Advent
Founders
Founders
Bridgepoint
Baird
AEA Investors
LGV
Equisitone
Key Capital
LDC
Dunedin
Blackstone
Graphite
Blackstone
Inflexion
Palatine
Graphite
RJD
Baird
Graphite
ND
234
ND
140
15
ND
44
75
45
110
25
30
100
24
42
86
n/a
10.3
7.0
7.0
6.5
n/a
8.0
6.5
6.9
7.0
4.7
5.6
12.0
6.8
7.8
8.0
Mean (excl AMS and NES)
Mean
6.8
7.4
Debt availability is currently a brake on valuations
Private equity multiples are in the range 5.0x to 7.5x EBITDA
16
Recent Exits
Holding
Period
Date
Company
Vendor
Buyer
Enterprise Value
PE Money
Multiple
Entry
Exit
Sep-06
Oct-12
6.09
NES
Graphite
AEA Investors
70
234
3.3
4.7
Aug-09
Oct-12
3.17
Air Energi
Palatine
LGV
30
ND
n/a
4.5
Dec-05
Jul-11
5.58
Red Commerce
Inflexion
Dunedin
15
44
2.9
4.4
Jun-99
Nov-10
11.43
Pulse
Hg
Blackstone
ND
75
n/a
3.7
Jul-07
Jul-10
3.00
Teaching Personnel
RJD
Graphite
24
45
1.9
3.0
Aug-08
Jun-10
1.83
ICS
Inflexion
Blackstone
ND
110
n/a
2.7
2.7
3.8
Mean
Entry
Growth in EV
5.18
17
Exit
Baird Human Capital
Case Studies
18
A Specialist Global Recruitment Company
•
NES Global Talent (“NES”) is one of the fastest growing providers of specialist personnel to the
international oil & gas, power and infrastructure sectors
•
Industry leading productivity levels
― Achieved through the rapid identification, placement and ongoing support of highly qualified engineers globally
― Engineers paid c. £100k per annum (often materially more) for contracts typically lasting 12 - 18 months
•
EBITDA has increased every year since 2004, equivalent to a compound annual increase of 22%
― Driven by the Global division, which has increased both EBITDA and NFI at over 35% per annum
― Global division EBITDA has increased from less than £2m to over £20m since 2004
•
2012F NFI and EBITDA of £59m and £24m, respectively
•
Attractive end markets with long term growth prospects
•
High barriers to entry in global markets
•
Highly fragmented market in which NES is a sector leader
― Well placed to lead consolidation and become the global market leader
•
Headquartered in the UK, serves clients through a global network of 32 offices and employs c. 450
staff
19
Case Study: £105 million Debt
Refinancing of NES (June 2012)
£105,000,000
•
NES required increased working capital facilities with greater operational flexibility to support 20%+
p.a. international growth
•
A broad group of traditional and alternative lenders were approached to participate in the enlarged
working capital and term loan facilities
•
RBS led a club with HSBC and Lloyds to provide a £105 million, 5-year committed debt package
consisting of:
Refinancing of
A Portfolio Company of
•
―
£25 million term loan
―
£40 million invoice discounting facility
―
£40 million committed revolving credit facility
The lenders indicated that an additional £25 - £30 million of acquisition financing could be available
to a purchaser
Traditional Lenders Approached
Alternative Lenders Approached
20
Case Study: £234 million sale of NES to
AEA Investors (October 2012
•
£234,000,000
A select group of potential private equity and strategic buyers were introduced to the
management team prior to the formal process launch
―
A Portfolio Company of
Sale to
•
Financial, commercial, legal and insurance vendor diligence reports were prepared to
facilitate potential buyers review of the global business
•
Eight indications of interest were received in August, with five potential buyers invited to
proceed
•
Prior to management presentations scheduled for early September, potential buyers were
encouraged to progress their due diligence and financing discussions with lenders
•
Following the management presentations, one potential buyer attempted to pre-empt the
process
Highly Targeted Process
―
15 Information
Memorandums Distributed
July
Significant buyer interaction with the management team was encouraged
throughout the process
Diligence continued with four other potential buyers
•
Three final offers, with SPA mark-ups and no outstanding diligence, were submitted less
than four weeks after management presentations
8 Indications of
Interest Submitted
August
•
5 Management
Presentations Held
All three bidders elected to roll the existing debt financing structure to increase the
deliverability of their offers
September
•
AEA signed the transaction within 72 hours of the final bids being submitted
3 Final Bids
with SPA
October
Mark-ups
―
•
Graphite realised a money multiple in excess of 4.5x
AEA, with significant experience in the oil & gas sector and developing the international
profile of its portfolio companies, will support the management team through NES’ next
growth phase
21
Aston Carter: A Case Study
Aston Carter CEO, Sean Zimdahl;
“Baird Capital Partners Europe has been a great partner. The team
brought deep sector knowledge and investment experience to our
business, which really helped us develop the initial growth strategy.
Then through tougher markets they were highly supportive of
managing the cost base and retaining the key people at a level that
enabled the business to grow quickly as markets improved. Their
operational expertise and international network was a real help.”
Aston Carter
Baird US introduced the acquirer of the business
Actions:
●
Accessed Baird resources to develop strategy for overseas growth and exit
●
Introduced operating partner John Hubert as non-executive Chair, helped development of
‘2012 Mid-Market Management Team of the Year’
Value Creation
senior management structure to aid international development
●
Incentivised the senior managers to drive continued growth
(£ in millions)
●
Significantly improved MIS reporting and financial/cash management to support growth
£40.0
●
Baird US introduced the acquirer of the business
£13.4
£30.0
Results:
●
Geographic expansion (Netherlands, Singapore, Hong Kong, UK, France, Sweden)
●
Built the customer base significantly by further penetrating core FS sector customers,
developing new customers and growing consulting/corporate accounts
●
Paid debt down c. 40%
●
Rapid execution of strategy supported the business in the recession and has enabled rapid
£20.0
£4.4
£1.3
£32.2
£13.1
£10.0
£0.0
profit growth early in the recovery
22
Investment EBITDA
Cost
Growth
Debt
Multiple Equity at
Reduction Expansion
Exit
Summary
• Sector is attractive to private equity buyers
• Valuations are: 5.0x to 7.5x LTM EBITDA
• Debt availability is currently a brake on both valuations and ability
to execute
– Questionable availability below £10m
– Perfect track record required
– Alternative lenders (at a price)
• Critical success factors include:
– Management for now and at exit
– Clear focus and discipline
– Credible growth story
– Scale and geography
– Exit planning: Ultimately being able to answer the
question...Who will buy and why?
23
Thank You
24

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