BGL Business Services Insider - Breakout of the PEO Industry

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Business Services

The BGL Business Services Insider is published by Brown Gibbons Lang & Company, a leading independent investment bank

serving middle market companies throughout the U.S. and internationally.

Spotlight:The Breakout of the PEO Industry

The Professional Employer Organization industry is seeing an

unprecedented breakout in growth and valuation. Regulatory

complexity is fueling demand for outsourced services in a

largely untapped small and medium-sized business market, with

fragmentation and strong secular tailwinds attracting capital

infl ows and driving up valuations.

In our spotlight survey, industry executives and investors provide

insight on future growth prospects for the sector, exploring the

value proposition of the PEO model, various driving factors of the

PEO industry itself, and the current valuations of PEOs.

July 2015Brown Gibbons Lang & Company

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Business Services Insider

2


The Professional Employer Organization (PEO) industry is experiencing a dramatic escalation in market penetration,

growth, and valuations, as regulatory change and an expanding small and medium-sized business (SMB) market fuel

demand for services.

Spotlight On:

PEO: An Industry at an Infl ection Point

The Breakout of the PEO Industry

Imagine that time travel were possible, affording the

opportunity to be an early investor in an emerging,

fragmented industry at an infl ection point in terms

of growth and market penetration. Examples of such

“breakthrough” sectors in the U.S. economy are

numerous—automotive, aerospace, technology, internet

retailing, and payroll outsourcing. Each comprised

of pioneering companies, among them Ford, Boeing,

IBM, Apple, Amazon, and ADP, that were innovators in

industries undergoing signifi cant transformation.

Fast forward to today. The PEO sector is poised for

comparable growth and market penetration. Highly

fragmented with some 700 operators, the PEO industry

services an estimated 3 million employees in an

addressable SMB market of 52 million, representing a

market penetration of less than 5 percent.

While the PEO industry has been in existence for more than two decades, a number of growth catalysts are redefi ning the scope of services and substantially increasing the potential for growth and market expansion:

• Greater acceptance of the outsourced PEO concept

• ACA has led to cost increases and added complexity for businesses, fueling increasing demand for outsourced PEO services

• PEO co-employment solution provides a vehicle for obtaining and controlling healthcare and worker’s compensation insurance expenses

• Success of SMB market key to U.S. economy; economic expansion and improving labor market fueling demand for PEO services

• Increasing emphasis on technology in PEO outsourcing

• New federal legislation through the Small Business Effi ciency Act (SBEA) offers various potential benefi ts for the PEO industry, including federal certifi cation and the elimination of double taxation

• Strong, established public players include ADP, Paychex,TriNet Group, and Insperity

• New investors entering the industry with signifi cant capital to fund organic and inorganic growth

Current PEO Penetration Market Opportunity

Source: NAPEO, IBISWorld, U.S. Census Bureau, Equity Research.

PEO Market Opportunity Industries ServedAt a current penetration of less than 5 percent, the PEO market opportunity

remains largely untapped.

PEO Client Industry SegmentationHR Services Market SpendPEO Penetration of SMB Market

22%

19%

15%

13%

10%

8%

7%6% Computer & Information

Technology

Finance, Insurance & Real Estate

Management, Administration &Consulting Services

Retail & Wholesale Trade

Other Industries

Professional Services

Manufacturing

Construction & Engineering

~3 million WSEs (5%)

~52 millionEmployees

(95%)$59

$69

$40

$60

$80

2012 2016E

NOTE:1 SMB is defined as companies with 500 or fewer workers2 SMBs employ approximately 55 million workers, representing 36 percent of the U.S. workforce.

CAGR 4%


3


PEO Industry Trends

• Healthcare reform has led many resource-constrained SMBs to utilize PEOs to navigate an increasingly complex regulatory environment and manage added compliance, workplace, and tax costs. Penalties for noncompliance are increasing, creating an even larger impact on the bottom line.

• PEOs have expanded their services to include expert guidance in the area of healthcare reform to help shift the larger proportion of compliance costs closer to industry averages of larger fi rms.

• Competition is escalating, particularly in the major revenue generating areas of payroll and benefi ts processing and administrative support to small- and medium-sized companies.

• PEOs will continue to recalibrate their WSE mix and target the lower-risk, white collar occupations and industries.

• Investment in leading-edge technology, HR specialty software and services, and mobile solutions will be instrumental to increase productivity and profi tability of operations.

• Increased regulation of the PEO industry and emphasis on technology are presenting formidable barriers to entry, potentially limiting the number of new entrants to the market, as well as strengthening the credibility of existing players.

• Continued economic expansion will support job growth shifting SMB hiring from a headwind to a tailwind.

• Consolidation will increase, as a direct outcome of increasing regulation and as industry players search for growth.

Large and Fragmented Industry Public and private capital is fl owing into the market. The competitive landscape is comprised of large public participants, including TriNet Group (TNET (initial public off ering in 2014)), ADP (ADP), Paychex (PAYX), Insperity (NSP), and Barrett Business Services (BBSI), as well as sizable private equity-backed platforms which include HR Outsourcing (HROI) (Clarion Capital Partners, 2015 Investment), Oasis Outsourcing (Stone Point Capital, 2014 Investment), CoAdvantage (Compass Investment Partners, 2012 Investment), Diversifi ed Human Resources (Caltius Equity Partners, 2009 Investment), and AlphaStaff (Accretive, 2008 Investment). Large equity funds General Atlantic Partners (TriNet) and ValueAct Capital Management (Gevity HR) were early investors in the industry.

Source: S&P Capital IQ, IBISWorld, Company Filings, and Company Websites.

Competitive Landscape

Worksite Employee Market Share PEO TypePEO Type: HR Value Proposition

Middle

High End

Low End

PEO Type: HR and Risk ManagementWSE Type: Gray and Blue Collar

Average Wage/WSE: $40,000 - $50,000

Primary Services Offered: HR, Administrative Relief, Benefits, Workers Comp, Risk Management

Admin Fees: $500 - $1,000

PEO Type: Risk Management and AllocationWSE Type: Blue Collar

Average Wage/WSE: $30,000 and below

Primary Services Offered: Workers Comp, Risk Management, SUTA Management (no HR or Benefits)

Admin Fees: <$500

PEO Type: HR Value Proposition

WSE Type: White Collar

Average Wage/WSE: $75,000+

Primary Services Offered: HR, Administrative Relief, Quality Benefits

Admin Fees: $1,400+

ADP

TriNet

Oasis

Insperity

BBSI

Paychex

Other

The six largest PEOs control an estimated 47 percent of the market (measured by WSEs).14%

12%

7%

5%

5%3%

53%


4

Spotlight On:



On a scale of 1 to 5 (with 5 being the highest) please rate

the importance of each of the following aspects of a PEO’s

value proposition:

Utilizing a Roundtable Survey of leading industry participants comprised of CEOs and investors in the PEO space, we examined the drivers of the recent breakout in growth and valuation, as well as the future growth prospects for the sector, exploring the value proposition of the PEO model, various driving factors of the

PEO industry itself, and the current valuations of PEOs.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strategic HR

Cost

Administrative Relief

Risk Sharing

ACA Compliance

Benefits Administration

Payroll Tax Management

Unemployment Tax Management

Health Insurance

Workers Compensation Insurance

Risk Management

HR Services

Payroll

HR Tools

Technology

1 2 3 4 5

• ACA compliance

• HR services

• Health insurance

• Benefi ts administration

• Administrative relief

• Technology

MOST IMPORTANT• Payroll tax management

• Unemployment tax management

• Strategic HR

• Workers compensation insurance

LESS IMPORTANT

Risk sharing received an average score in the overall ranking, with only 44 percent of respondents assigning an importance rating of either 4 or 5.

“Administrative relief; access to expertise; “sleep at night” knowing that things are handled”

“Bringing ease of use and value in the tools and services”

“Creating an environment of confi dence”

“For our business it comes down to payroll, benefi ts, and costs, while we are trying to make it about HR, benefi ts, and risk expertise.”

Indicate the most important aspects of a PEO’s value proposition:

PEO VALUE PROPOSITION

PE

RS

PE

CT

IVE

“Breadth of services”

“Leading-edge technology”

“Relationship; customer service”


5


On a scale of 1 to 5 (with 5 being the highest) please rank

the following client employee sizes in terms of fi tting

within the PEO model:

On a scale of 1 to 5 (with 5 being the highest) please

rank the desirability of a PEO also offering the following

additional non-PEO services:

What do you believe is the appropriate average

administrative fee for a high quality PEO service model?

0% 20% 40% 60% 80% 100%

200+

100 - 200

50 -100

25 - 50

25 or less

1 2 3 4 5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Financial Software

Reporting

Labor Management

Time and Attendance

Staffing

HRIS Tools

Recruiting

ASO

Payroll Only

1 2 3 4 5

38%

44%

19%

< $1,000

$1,000 to $1,250

$1,250 to $1,500

$1,500 +

• 25-50 employees

MOST IMPORTANT• 200+ employees

LESS IMPORTANT

• Time and attendance

• ASO

• Reporting

• Recruiting

MOST IMPORTANT

• Staffi ng

• Payroll only

LESS IMPORTANT

Nearly 90 percent of industry participants surveyed identifi ed client employee size of 25-50 as the primary target PEO market, followed by approximately 60 percent for 50-100, underscoring the importance of the SMB market to the PEO model.

More than 80 percent of surveyed companies believeadministrative fees should fall within a range of $1,000 to $1,500 for high quality PEOs. While the category received fewer responses, premium fees ($1,500+) are achievable if sold properly.

Financial Software and HRIS Tools were rated as average importance receiving “3” scores by 59 percent and 47 percent of respondents, respectively.

“Diff erent models and wage groups will support diff erent fee structures. Competition can drive down margins for existing PEO customers at the expense of

generating new business.”

PEO VALUE PROPOSITION


6

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nationalized health care system

Distributed by carriers directly to consumers

Obtained through exchanges

Continue to be obtained through employment

The current legislative framework

1 2 3 4 5

Spotlight On:




the likelihood that U.S. Health Care Reform in its fi nal form

will look like:

PEO executives foresee change on the horizon, with exchanges and direct-to-consumer expected to play a more prominent role in healthcare delivery. The majority consider a nationalized healthcare system unlikely.

“Public exchanges for individuals may have cost issues. Private exchanges for groups may be more

economical.”

Assuming the current penetration of the PEO industry is

5-7% of the SMB market, on a scale of 1 - 5 (with 5 being the

highest) please rank the likelihood that PEO penetration in

the next 5 years can reach the following levels:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Over 25%

25%

20%

15%

10%

1 2 3 4 5

PEO penetration could nearly double over the next fi ve years, survey respondents estimate, reaching 10-15 percent of the SMB market. This would more than double the size of the existing PEO market.

“The addition of ASO would expand the PEO service model and off er greater potential for increased market

penetration.”

PEO INDUSTRY

“This isn’t a one solution answer. Delivery of insurance will likely come in multiple forms.”


7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Portal / Website

Mobile Access

Reporting

Benefits Administration

Company Strength

Roadmap

User Interface

Client Interface

Time and Attendance

Client On Boarding

Implementation

Cost Effectiveness

Functionality

1 2 3 4 5



each of the following PEO markets in terms of further

penetration opportunity:


the importance of each of the following in evaluating a

PEO technology platform:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Northeast (NY, NJ, CN, MA, PA)

Midwest (IL, IN, WI, MO, KY, IA)

Texas

West (OR, WA, UT, CO)

California

Southeast (GA, NC, SC, TN, AL)

Florida

1 2 3 4 5

• Midwest

• West

• Northeast

HIGHEST• Florida

LOWER

• Functionality

• Client interface

• Portal / website

• Reporting

• Mobile access

• Time and attendance

MOST IMPORTANT

• Company strength

• Roadmap

LESS IMPORTANT

The state of Florida has the highest current PEO market penetration at approximately 27 percent, and therefore has less opportunity for additional penetration.

PEO INDUSTRY


8

Spotlight On:




the signifi cance of each of the following issues that the

PEO industry faces:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Market Awareness

Sustainability of U.S. Economy

Non PEO Competition (Zenefits, ADP, Paychex, Workday)

Health Insurance Markets

Heathcare Reform

Workers Compensation Markets

Technology

Regulation

1 2 3 4 5

• Technology

• Regulation

• Healthcare reform

• Market awareness

• Non-PEO competition

MOST IMPORTANT• Sustainability of U.S.

economy

• Workers compensation markets

LESS IMPORTANT

PEO INDUSTRY

On a scale of 1 to 5 (with 5 being the highest) please

rank the quality of each of the following PEO technology

platforms:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Heartland / Ovation

Millennium

Workday

Oracle/PeopleSoft

PayPlus

Summit / Apex

Darwin

PrismHR (HRP)

1 2 3 4 5

PrismHR and Workday were among the companies receiving high rankings for their technology platforms. Summit/Apex and Millenium received lower rankings.

“Technology can be the sizzle that sells the steak. They may not need it now, but your business sees the

PEO as forward thinking.”


9


When valuing a PEO, please rate on a scale of 1 to 5 (with 5

being the highest) the importance of each of the following

factors:

For a high quality PEO, please indicate the appropriate

% of Gross Profi t that each of the following components

should represent:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Average Gross Profit per WSE

Average Administrative Fee per WSE

Average WSE Wage

Health Insurance Program

WC Program

Risk Management

Technology Platform

Quality of HR Services

Productivity of Sales Engine

Management Team

Geographic Locations

Client Retention

Industries Served

Quality of Client Portfolio

Quality of Earnings

Earnings

Future Growth Potential

Historical Growth Rate

Size

1 2 3 4 5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Commissions

SUTA

Workers Comp

Admin Fees

10% or less

25-50%

50-75%

75-100%

Other

• Quality of earnings

• Quality of client portfolio

• Future growth potential

• Average gross profi t per WSE

• Client retention

• Management team

• Industries served

• Technology platform

MOST IMPORTANT

• Quality of HR services

• Size

LESS IMPORTANT

Growth, profi tability, and people rank among the top criteria when valuing a PEO:

• While both earned high rankings, potential for future growth was valued higher than historical growth.

• Earnings quality was valued higher than absolute dollar value of earnings.

• A quality management team is imperative.

Administrative fees are the core component of profi tability for leading PEOs. Nearly 90 percent of company executives expect admin fees to account for 50 percent or more of PEO gross profi t.

PEO VALUATION


10

Spotlight On:



For each of the following hypothetical PEOs, please select the appropriate adjusted EBITDA multiple for valuation purposes:

SizeAnnual Growth Average Administrative Fee per WSE

Average Gross Profit per WSE

Average EBITDA per WSE

5,000 WSEs0%

$750

$1,000$300

5,000 WSEs0%

$750

$1,000$300

10,000 WSEs5%

$1,000

$1,200$400

50,000 WSEs10%

$1,250

$1,500$500

100,000 WSEs15%$750

$1,200$400

5-6x

7-8x

8-9x

9-10x

10x+79%

21%

5-6x

7-8x

8-9x

9-10x

7%

57%

29%

7%

5-6x

7-8x

8-9x

9-10x

14%

36%

21%

29%5-6x

7-8x

8-9x

9-10x

10x+

14%

36%

21%

29%

5-6x 7-8x 8-10x+ 8-10x+

Source: S&P Capital IQ.

*Median ValuesBGL PEO Composite Index: ADP, BBSI, NSP, TNET, PAYX

8.1x

8.2x

6.6x

5.7x

6.9x

8.3x 9.

1x 9.4x

11.1

x

13.0

x

13.1

x

11.6

x

10.5

x

9.0x

11.3

x

11.6

x

11.5

x

11.9

x

11.4

x 12.5

x

13.0

x 14.1

x

16.2

x

14.0

x

13.6

x

14.0

x

14.8

x

15.1

x

13.1

x

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Q4

14

Q1

15

Q2

15EBITDA Multiple

Historical Valuation Trends

The PEO industry has

witnessed signifi cant

multiple expansion over the

past few years, a function of

an improving labor market

and increased outsourcing

demand.

PEO VALUATION

Illustrates the valuation ranges for PEOs with different metrics in today’s market


11


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TriNet

Barrett Business Services

Insperity

Paychex

ADP

6-8x

8-10x

10-12x

12x+

Please indicate the appropriate EBITDA multiple valuation

range for the following PEOs in the current market:

Survey fi ndings revealed signifi cant variability. The valuation range of 8-10x received the highest number of responses, which challenges current public market valuations.

Relative Valuation Trends

The PEO value proposition

is observed in public market

valuations, which for high-

quality PEOs, have risen to

historic levels.

PEO VALUATION

Current EBITDA Multiples of Public PEOs

Source: S&P Capital IQ.As of 7/10/2015.

13.3x14.5x

12.7x13.2x

0.0x0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

ADP Paychex Insperity TriNet BBSI

NM


EBIT

DA

Mul

tipl

e

Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

ADP 14.6x 14.6x 14.6x 14.7x 15.0x 14.9x 15.1x 13.2x 15.0x 15.2x 14.7x 14.6x 14.9x 14.8x 14.2x 13.8x 13.3x

BBSI 13.6x 12.8x 9.6x 10.0x 11.6x 13.0x 12.5x 7.7x NM NM NM NM NM NM NM NM NM

Insperity 6.2x 7.0x 7.4x 8.0x 7.8x 8.1x 7.6x 6.8x 9.7x 9.7x 9.8x 12.9x 15.7x 15.4x 12.4x 13.0x 12.7x

TriNet 14.8x 16.0x 14.3x 15.1x 13.7x 15.5x 14.1x 14.3x 14.5x 14.5x 15.3x 16.1x 16.2x 17.6x 17.1x 14.7x 13.2x

Paychex 13.9x 13.4x 13.2x 13.5x 13.4x 13.6x 13.7x 13.9x 15.1x 15.0x 14.4x 14.1x 15.2x 15.2x 15.2x 14.9x 14.5x

Median 13.9x 13.4x 13.2x 13.5x 13.4x 13.6x 13.7x 13.2x 14.7x 14.8x 14.6x 14.3x 15.5x 15.3x 14.7x 14.2x 13.3x

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

*Post-TriNet IPO


12

Spotlight On:



Please rate on a scale of 1 to 5 (with 5 being the highest)

the factors below that have driven the increase in PEO

valuations over the past two years:

Over the next 12 months, do you believe that PEO

valuations will:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Performance of Leading PEOs

Healthcare Reform

Investor Interest in Sector

Improvement in U.S. Economy

1 2 3 4 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Remain at the SameLevel

Increase Decline

Yes

No

Survey respondents concur that the market outlook is favorable for the PEO industry. Nearly 80 percent of companies surveyed expect valuations will rise over the next 12 months.

Growing investor interest has been a primary catalyst in multiple expansion, identifi ed by more than 90 percent (rating of 4 or 5) of survey participants. The success of leading PEOs has also infl uenced valuation trends.

PEO VALUATION


13


M&A Activity

The PEO sector is consolidating at a rapid rate. Year-

to-date transaction volume is ahead of last year’s pace.

Recent transactions are commanding premium valuations

evidenced by one to two turns of EBITDA multiple

expansion in the last two years.

Large industry players are aggressively pursuing

acquisitive growth, while renewed investor interest has

large and reputable private equity fi rms seeking platforms

and add-on acquisitions for current investments.

Highlights:

• Size: ~160,000 WSEs

• Historical Growth: ~20%+

• Client Base: Average Wage ~$40,000

• Industries: Business Services, Retail, Hospitality

• Technology Platform: HRPyramid (HRP)

• Strong management team

December 2014

“We are delighted to be partnering with Oasis and its management team. The company’s ability to provide cost-eff ective outsourced solutions while also providing access

to aff ordable benefi t plans is very compelling for small- and medium-sized businesses, especially in light of the increasing complexity and regulations related to HR.”

Chuck DavisCEO, Stone Point Capital

Transaction allows Oasis to pursue an aggressive growth strategy, both organically and through strategic acquisitions.

SELECTED INVESTMENT ACTIVITY INVOLVING PEOs

TARGET

APR-15

MAR-15

PEO VALUATION

DEC-14

NOV-14

OCT-14

MAR-14

FEB-14

FEB-14

FEB-14

ACQUIRER

JUN-15

SOURCE: S&P Capital IQ, PitchBook, Company Filings, and public data.


14


I am perplexed by participants in the PEO industry who are still debating the

“pros and cons” of the Small Business Effi ciency Act (SBEA). This landmark

legislation was enacted in December 2014 to provide federal recognition and

regulation of PEOs under the U.S. tax code. After 25 years in existence, the

PEO industry fi nally has the start of a national framework for certifi cation and

acceptance.

Those in opposition criticize the legislation on the basis of, most notably, (a)

creating costs to PEOs with the requirement for annual independent audits,

(b) being another example of increased federal regulation of an industry, and

(c) creating a potential confl ict with Employer Services Assurance Corporation

(ESAC), the PEO industry’s self-governing organization.

History has shown us that state or industry self-regulation of fi nancial services

industries has been ineffective. Federal regulation has been found to be

necessary to mitigate abuses in such industries as investment banking and

brokerage, commercial banking, and mortgage lending. The annual audit

requirement, for example, is certainly appropriate for any industry, PEO included,

that holds and remits payroll, tax deposits, and benefi ts payments on behalf of

small businesses and their employees.

The growth and penetration of the PEO industry has been negatively impacted

for years by improper acts of certain operators that have gone undetected

due to inconsistent and loose regulatory oversight. This February, Tri-State

Employment Services, a New York-based PEO, fi led for bankruptcy after

failing to remit approximately $95 million of state and federal payroll taxes,

which resulted in signifi cant disruption not only to the company’s clients and

shareholders but also to its lender Wells Fargo and its workers compensation

insurance carrier, Lumbermen’s Underwriting Alliance. This type of disruption

and negative publicity can be detrimental to any industry. The audit and

certifi cation requirements of SBEA should help to alleviate these types of

adverse industry events.

As is the case with any new legislation, there will be a period of evolution

through trial and error, and the regulatory framework will never be perfect nor

please everyone. However, with the existence of uniform regulation through

SBEA, the PEO industry will be stronger for it, and the industry leaders who

embrace the new framework will guide the sector to higher levels of recognition

and growth.

Where is the “con” in SBEA?

PERSPECTIVE: CLIFF SLADNICK

Cliff Sladnick heads BGL’s Human Capital Management Outsourcing Practice.

“With the existence of uniform regulation through SBEA, the PEO industry will be stronger for it, and the industry leaders who embrace the new framework will guide the sector to higher levels of recognition and growth.”

Middle Market M&A Activity Private Equity Transaction Activity*

Mergers & Acquisitions Activity

Trends in Valuation

Acquisition Financing Trends

Total Leverage Equity Contribution

SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.*NA: Data not reported due to limited number of observations for period.*NA: Data not reported due to limited number of observations for period. SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.

Transactions with Strategic Buyers Transactions with Financial Buyers

Transaction Count by Deal Size

Middle market enterprise values between $25 million and $500 million. Middle market enterprise values between $25 million and $500 million.

EBIT

DA

Mul

tiple

Tota

l Deb

t to

EBIT

DA

EBIT

DA

Mul

tiple

Equi

ty C

ontr

ibut

ion

(%)

7.2x

8.3x

6.5x 6.6x

6.3x

7.52

8.1x 8.

5x

8.2x

8.0x 8.0x

7.4x 7.

7x

7.7x

9.3x

8.5x

9.9x

9.4x

7.5x

8.5x

9.1x

8.7x

8.7x

9.9x

9.9x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 Jun-15

<$250 million $250-$499 million $500 million+

Middle Market M&A Activity

SOURCE: PitchBook.SOURCE: S&P Capital IQ.Based on announced deals, where the primary location of the target is in the United States.Middle market enterprise values between $25 million and $500 million.

*Buyout activity only2015 data of 3/31/2015.

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Num

ber o

f Tra

nsac

tions

Under $25M $25M-$100M $100M-$500M $500M-$1B $1B-$2.5B $2.5B+

4.8x

5.4x

4.1x3.6x

4.1x 4.3x 4.5x4.7x 4.7x 4.9x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 Jun-15

38%

35%

46%

51%

47%

43%41% 40%

37%

41%

25%

30%

35%

40%

45%

50%

55%

2006 2007 2008 2009 2010 2011 2012 2013 2014 Jun-15

119

148

125

151

106 14

115

614

510

713

214

811

458 97 96 13

110

012

214

113

412

0 166

163

154

137

160

164 23

514

716

119

219

916

1 217

231

250

232

227

207 21

921

4 240

207 22

221

1 268

191 20

7 233

113

9112

011

119

714

5 161 23

420

416

823

022

621

417

6 211

188

307

208 22

7 248 28

623

325

5 328 35

528

327

0

6566

5963

6267 63

6336

5843

1919

26 3540

3242

5861

5563 68

5342

54 5069

3946

6079

4982

7370

60 53

$0

$10

$20

$30

$40

$50

$60

$70

$80

0

100

200

300

400

500

600

700

800

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Transaction Value ($ in billions)Num

ber o

f Tra

nsac

tions

$25M-$50M $50M-$250M $250M-$500M Trans Value

8.2x

6.8x 7.

1x

9.8x

8.0x

7.6x 7.7x

8.6x 8.7x

8.4x8.

7x

9.4x

8.4x

7.6x

9.2x 9.

5x

8.9x

8.7x

9.6x10

.0x

9.1x

10.2

x

8.2x

9.5x 9.7x

9.7x

8.5x

9.1x

8.9x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 Jun-15

<$250 million $250-$499 million $500 million+

NA

*

NA

*

NA

*

NA

*N

A*

NA

*

Overall M&A Activity


15

Business Services M&A Activity

PAYROLL & PAYROLL PROCESSING

In March 2015, Heartland Payment Systems (NYSE:HPY),

one of the nation’s largest payment processors, acquired

Payroll 1 in a $30 million transaction. Headquartered in

Birmingham, Michigan, Payroll 1 provides comprehensive

payroll and tax fi ling products and services for employers

throughout the United States. After the acquisition,

Heartland services a payroll base exceeding 32,500

customers.

“The acquisition of Payroll 1 reinforces Heartland’s

commitment to providing our customers with one of the

industry’s broadest set of payment processing solutions,”

said Heartland’s CEO Robert Carr. “Integrating Payroll

1 into the Heartland organization allows us to gain

operational synergies, materially grow our payroll footprint,

and look to continue our leadership in exceeding our

customers’ requirement of superior services and products.”

After the successful acquisition of Payroll 1, Heartland will

continue seeking profi table acquisitions that support its

strategy of growing its payroll processing segment.

Transaction Multiple: 2.4x LTM Revenue

In April 2015, Google Capital led a round of funding for

California-based online payroll company ZenPayroll. With

participation from existing investors General Catalyst,

Kleiner Perkins Caufi eld & Byers, and Google Venture, as

well as Emergence Capital Partners and Ribbit Capital,

the syndicate completed a $60 million round of Series

B funding, bringing ZenPayroll’s total funding to date to

$86.1 million.

Launched in 2012, ZenPayroll has grown 10x since its

Series A, now serving over 10,000 small businesses across

47 states. The company’s cloud-based interface facilitates

online and mobile accessibility to process payroll, enabling

it to compete directly with industry veterans Paychex

and ADP. “They’re growing at an incredible rate and

we’re excited to see how they’ll continue to help small

businesses around the country,” said Laela Sturdy, partner

at Google Capital.

The recent capital raise is expected to allow ZenPayroll to

service larger businesses. ZenPayroll CEO Joshua Reeves

commented, “…we have ambitions to help all businesses

everywhere, regardless of size.”

SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.

16


Source: S&P Capital IQ, mergermarket, PitchBook, and BGL Research.

Historical Business Services M&A Activity

Based on announced deals, where the primary location of the target is in the United States.

Quarterly M&A Activity by Sector

0

15

30

45

60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2011 2012 2013 2014 2015

Num

ber o

f Tra

nsac

�ons

HR Technology Payroll Benefits Administra�on PEO Staffing


“The ClearBenefi ts customers fi t our customer profi le

extremely well, and the employees who are joining

PlanSource are seasoned veterans who will be a

tremendous asset to our organization,” said PlanSource

CEO Dayne Williams. BENU CEO Jeff Closs, added, “The

acquisition of ClearBenefi ts by PlanSource is truly a win

for our customers, who will continue to be supported by

the same outstanding team that supports them today,

but with access to the PlanSource suite of products and

services.” Terms of the transaction were not disclosed.

PROFESSIONAL EMPLOYER ORGANIZATIONS

In March 2015, Clarion Capital Partners, a New York-based

middle market private equity fi rm, invested growth equity

capital in HR Outsourcing Holdings (HROI). Georgia-

based HROI is a professional employer organization

and administrative services organization specializing

in payroll administration, safety and risk management,

workers’ compensation, human resource administration,

compliance, and benefi ts administration. The initial

growth capital investment from Clarion will allow HROI to

accelerate its organic growth and to grow nationally.

“Clarion’s deep industry expertise creates an opportunity

to build an industry leading company in the growing and

fragmented human resources outsourcing industry,” said

HROI CEO Carl Guidice.

STAFFING

In June 2015, Creative Circle was acquired by On

Assignment (NYSE: ASGN) for $570 million in cash and

equity. As part of the transaction, On Assignment will

pay up to an additional $30 million, contingent upon

Creative Circle’s 2015 operating performance. Staffi ng

agency Creative Circle provides services for connecting

advertising, marketing, creative, and interactive

professionals with companies seeking talent on a full-time

or freelance basis. Company revenues have grown at a

26 percent CAGR since 2011. The acquisition expands the

range of digital staffi ng services On Assignment is able to

provide to its clients.

“We are proud to welcome Google Capital to the

ZenPayroll community. Not only does Google exemplify the

power of technology to improve people’s lives, they also

share our core belief that people are the most important

part of every business,” Reeves added.

BENEFITS ADMINISTRATION

In May 2015, Towers Watson (NASDAQ: TW), a global

professional services company, acquired Acclaris for

$140 million. Tampa, Florida-based Acclaris provides SaaS

technology and services that support account-based

healthcare plans as well as health savings accounts, fl exible

spending accounts, healthcare reimbursement accounts,

and defi ned-contribution accounts. With a team of over

600 people, Acclaris works with 6,000 employers to

administer 1.4 million healthcare accounts. The acquisition

of Acclaris enhances Towers Watson’s position as a leading

benefi ts administration and exchange provider.

Commenting on the acquisition, Jim Foreman, managing

director for Towers Watson’s Exchange Solutions segment,

said, “Going forward, Towers Watson and Acclaris will

enable clients of any size to offer benefi ts in new and

cost-effective ways.” He also added, “Acclaris stands out

from the competition for its operational effi ciency, and

its scalable and confi gurable SaaS-based technology and

service delivery. We believe this combination will allow us

to offer the end-to-end process for both traditional benefi ts

administration and private benefi ts exchange solutions, and

to deliver a seamless experience for our employer-clients,

an exceptional experience for consumers and high-quality

customer support for both.”

Transaction Multiple: 4.0x 2015 Estimated Revenue

In March 2015, PlanSource Benefi ts Administration,

a leading cloud-based health exchange and benefi ts

engagement platform, acquired ClearBenefi ts from BENU,

an innovator in software technology for payroll, benefi ts,

and human resources. With the addition of treasury and

billing reconciliation services, the acquisition enables

PlanSource to bolster its billing capabilities while expanding

its U.S. presence.



17

Commenting on the transaction, On Assignment CEO

Peter Dameris, said, “Consumers’ rapidly growing

demand for real-time information and services requires

an increase in highly skilled, talented professionals to

support this digital platform. The need for technical and

creative services creates a great opportunity for us to

align Creative Circle with our On Assignment divisions that

specialize in IT to expand our service offering.” Creative

Circle will continue to operate under the Creative Circle

brand name as a division of On Assignment.

Transaction Multiple: 2.5x 2014 Revenue, 12.0x EBITDA

In January 2015, EmCare, a unit of Envision Healthcare

Holdings (NYSE: EVHC), announced its acquisition of

Vista Staffi ng Solutions, the physician staffi ng business of

On Assignment (NYSE: ASGN) for $123 million. The deal

is expected to add approximately $135 million in annual

net revenues. Vista provides “locus tenens” (fi ll-in) and

permanent placement of physicians, nurse practitioners,

and physician assistants, serving hospitals, medical

practices, and government agencies.

“We staff thousands of clinicians each year, so joining

forces with the very talented team of one of the largest

locus tenens physician staffi ng fi rms in the nation was

a logical move,” said Envision CEO William Sanger.

“Vista’s business practices and systems will be key

differentiators for us as we develop a comprehensive

multi-specialty staffi ng practice for all levels of clinicians.”

In response to the acquisition, Peter Dameris, CEO of On

Assignment added, “This is an incredible opportunity for

Vista to align with a world class healthcare organization

and for On Assignment to focus more specifi cally on high

demand IT, math, and science skill sets.”




18

Industry Valuations



19

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

EV/EBITDA 12.1x 12.0x 11.0x 9.3x 9.5x 10.2x 10.1x 10.8x 10.8x 10.9x 11.7x 12.0x 13.4x 13.3x 14.2x 13.7x 14.2x 13.4x 13.3xEV/Revenue 2.2x 2.3x 2.1x 1.8x 1.9x 1.9x 1.9x 2.0x 2.0x 2.0x 2.1x 2.3x 2.5x 2.5x 2.6x 2.6x 2.7x 2.7x 2.8x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215


1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

4.0x

8.0x

12.0x

16.0x

20.0x

24.0x

28.0x

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215


2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215


0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215


0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215


0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

SOURCE: S&P Capital IQ.

Industry Valuations



20

NOTE: Figures in bold and italic type were excluded from median and mean calculation.

(1) As of 7/10/2015.

(2) Market Capitalization is the aggregate value of a firm's outstanding common stock.

(3) Enterprise Value is the total value of a firm (including all debt and equity).


($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTMCompany Name Country Ticker Stock Price (1) 52W High Capitalization (2) Value (3) Revenue EBITDA EBITDA Revenue Gross EBITDA

STAFFING

Adecco S.A. Switzerland SWX: ADEN $77.10 93.0% $13,452.0 $14,561.3 0.7x 13.1x 1.9x $20,427.0 18.6% 5.2%

Robert Half International Inc. United States NYSE: RHI 56.17 88.8% 7,587.2 7,327.6 1.5x 12.8x 0.0x 4,816.2 41.1% 11.9%

ManpowerGroup Inc. United States NYSE: MAN 91.89 99.6% 7,188.0 6,982.1 0.3x 8.7x 0.5x 20,401.0 16.8% 3.9%

On Assignment Inc. United States NYSE: ASGN 40.69 99.9% 2,137.0 2,395.2 1.3x 12.6x 1.8x 1,883.1 32.2% 10.1%

Korn/Ferry International United States NYSE: KFY 34.80 95.8% 1,761.8 1,355.2 1.3x 9.7x 0.0x 1,028.2 28.9% 13.3%

Michael Page International plc United Kingdom LSE: MPI 5.47 96.3% 1,686.3 1,596.3 1.5x 18.5x 0.0x 1,046.9 50.9% 8.3%

AMN Healthcare Services Inc. United States NYSE: AHS 31.47 96.7% 1,496.6 1,723.0 1.5x 18.0x 2.5x 1,122.7 30.6% 8.5%

TrueBlue, Inc. United States NYSE: TBI 30.05 95.4% 1,260.3 1,355.7 0.6x 10.6x 0.9x 2,351.3 24.1% 5.5%

USG People NV Netherlands ENXTAM: USG 12.93 92.0% 1,048.9 1,211.3 0.5x 14.3x 2.6x 2,382.9 20.8% 3.5%

Brunel International NV Netherlands ENXTAM: BRNL 17.86 85.7% 890.1 765.5 0.6x 9.8x 0.0x 1,386.6 18.0% 5.6%

Kforce Inc. United States NASDAQ: KFRC 22.18 88.8% 656.4 749.2 0.6x 12.7x 1.6x 1,247.9 30.9% 4.7%

Resources Connection Inc. United States NASDAQ: RECN 16.13 87.0% 606.1 513.7 0.9x 9.3x 0.0x 598.6 38.7% 9.2%

Kelly Services, Inc. United States NasdaqGS:KELY.A 15.14 83.1% 570.8 602.0 0.1x 9.8x 1.3x 5,552.5 16.3% 1.1%

Heidrick & Struggles International Inc. United States NASDAQ: HSII 25.87 96.8% 473.9 394.3 0.8x 8.0x 0.6x 498.3 31.8% 9.9%

CDI Corp. United States NYSE: CDI 12.89 67.0% 253.2 228.1 0.2x 7.4x 0.1x 1,104.2 18.3% 2.8%

Median $25.87 93.0% $1,260.3 $1,355.2 0.7x 10.6x 0.6x $1,386.6 28.9% 5.6%

Mean $32.71 91.1% $2,737.9 $2,784.0 0.8x 11.7x 0.9x $4,389.8 27.9% 6.9%

PROFESSIONAL EMPLOYER ORGANIZATIONS

Automatic Data Processing, Inc. United States NasdaqGS:ADP $81.52 90.3% $38,275.6 $36,449.8 2.8x 13.3x 0.0x $12,792.5 43.0% 21.4%

Paychex, Inc. United States NasdaqGS:PAYX 47.78 92.4% 17,355.0 16,818.4 6.1x 14.5x 0.0x 2,739.6 70.5% 42.3%

TriNet Group, Inc. United States NYSE:TNET 25.41 66.9% 1,784.1 2,194.5 0.9x 13.2x 3.1x 2,310.2 17.0% 7.2%

Insperity, Inc. United States NYSE:NSP 52.47 94.7% 1,338.2 1,080.8 0.4x 12.7x 0.0x 2,420.3 17.7% 3.5%

Barrett Business Services Inc. United States NasdaqGS:BBSI 39.29 61.9% 280.6 294.5 0.4x NM NM 668.0 46.8% -6.9%

Median $47.78 90.3% $1,784.1 $2,194.5 0.9x 13.3x 0.0x $2,420.3 43.0% 7.2%

Mean $49.29 81.2% $11,806.7 $11,367.6 2.2x 13.4x 0.8x $4,186.1 39.0% 13.5%

PAYROLL & PAYROLL PROCESSING

Automatic Data Processing, Inc. United States NasdaqGS:ADP $81.52 90.3% $38,275.6 $36,449.8 2.8x 13.3x 0.0x $12,792.5 43.0% 21.4%

Intuit Inc. United States NasdaqGS:INTU 104.36 95.6% 28,768.8 27,183.8 6.2x 25.1x 0.5x 4,388.0 83.1% 24.7%

Paychex, Inc. United States NasdaqGS:PAYX 47.78 92.4% 17,355.0 16,818.4 6.1x 14.5x 0.0x 2,739.6 70.5% 42.3%

Sage Group plc United Kingdom LSE:SGE 5.24 89.7% 5,620.2 6,130.1 4.5x 16.0x 2.0x 1,349.5 94.0% 28.4%

The Ultimate Software Group, Inc. United States NasdaqGS:ULTI 167.20 91.2% 4,778.6 4,665.9 8.8x 65.7x 0.1x 529.7 60.0% 13.4%

Paycom Software, Inc. United States NYSE:PAYC 34.46 86.7% 2,011.5 2,002.3 11.8x 67.3x 0.9x 169.2 84.7% 17.6%

Paylocity Holding Corporation United States NasdaqGS:PCTY 35.36 93.2% 1,790.1 1,696.9 12.0x NM 0.0x 141.3 52.2% -6.7%

Median $81.52 91.2% $17,355.0 $16,818.4 6.1x 16.0x 0.1x $2,739.6 70.5% 24.7%

Mean $81.22 91.9% $18,959.6 $18,249.6 5.7x 26.9x 0.5x $4,359.9 70.1% 26.0%

BENEFITS ADMINISTRATION

Aon plc United Kingdom NYSE: AON $101.78 95.1% $28,674.9 $33,822.9 2.8x 13.3x 2.2x $11,920.0 41.7% 21.2%

Towers Watson & Co. United States NasdaqGS:TW 129.73 91.4% 8,979.0 8,439.3 2.3x 11.8x 0.3x 3,635.7 33.2% 19.6%

SS&C Technologies Holdings, Inc. United States NasdaqGS:SSNC 64.36 98.7% 6,508.6 7,015.5 8.9x 23.7x 2.0x 787.8 46.5% 37.5%

Benefitfocus, Inc. United States NasdaqGM:BNFT 42.18 88.8% 1,205.8 1,143.7 7.7x NM NM 149.4 39.3% -34.7%

Morneau Shepell Inc. Canada TSX:MSI 16.70 91.9% 801.9 1,117.2 2.1x 13.5x 3.8x 543.2 32.1% 15.2%

Castlight Health, Inc. United States NYSE: CSLT 7.58 45.9% 710.8 525.0 9.9x NM 0.0x 53.2 46.7% -150.6%

CBIZ, Inc. United States NYSE: CBZ 9.76 98.8% 529.3 773.4 1.1x 10.1x 3.2x 728.6 12.4% 10.5%

Median $53.27 93.5% $3,857.2 $4,079.6 2.6x 13.3x 2.2x $758.2 36.3% 17.4%

Mean $60.75 94.1% $7,783.2 $8,718.7 4.1x 14.5x 2.3x $2,960.8 34.2% 11.6%

INSURANCE BROKERAGE

Marsh & McLennan Companies, Inc. United States NYSE: MMC $57.17 95.3% $30,780.8 $33,656.8 2.6x 12.2x 1.4x $12,902.0 42.6% 21.4%

Aon plc United Kingdom NYSE: AON 101.78 95.1% 28,674.9 33,822.9 2.8x 13.3x 2.2x 11,920.0 41.7% 21.2%

Willis Group Holdings Public Limited Company United Kingdom NYSE: WSH 46.99 94.1% 8,443.1 10,319.1 2.7x 12.5x 2.8x 3,758.0 39.4% 21.7%

Arthur J Gallagher & Co. United States NYSE: AJG 47.58 95.9% 7,991.1 10,124.5 2.1x 14.3x 3.3x 4,885.0 30.3% 14.4%

Brown & Brown Inc. United States NYSE: BRO 33.65 99.5% 4,739.5 5,561.4 3.5x 10.4x 2.2x 1,609.2 49.5% 33.2%

Erie Indemnity Company United States NasdaqGS: ERIE 84.83 90.2% 4,435.7 11,442.7 1.8x 12.9x 0.0x 6,218.0 14.0% 14.3%

CorVel Corporation United States NasdaqGS: CRVL 33.14 72.1% 665.0 639.5 1.3x 10.1x 0.0x 492.6 20.3% 12.9%

Median $47.58 95.1% $7,991.1 $10,319.1 2.6x 12.5x 2.2x $4,885.0 39.4% 21.2%

Mean $57.88 91.7% $12,247.2 $15,081.0 2.4x 12.2x 1.7x $5,969.3 34.0% 19.9%

HR TECHNOLOGY

Oracle Corporation United States ORCL $40.36 86.4% $175,004.1 $163,029.1 4.3x 10.1x 2.6x $38,226.0 60.3% 42.0%

SAP SE Germany SAP 65.00 91.9% 77,697.6 83,374.6 4.5x 13.8x 1.7x 18,359.0 71.6% 32.9%

LinkedIn Corporation United States NYSE: LNKD 209.95 76.0% 26,446.3 24,014.6 10.1x 100.0x 4.6x 2,383.3 86.6% 10.1%

Workday, Inc. United States WDAY 79.52 81.6% 15,188.3 13,764.8 15.7x NM NM 879.1 67.5% -17.3%

Sage Group plc United Kingdom LSE:SGE 5.24 89.7% 5,620.2 6,130.1 4.5x 16.0x 2.0x 1,349.5 94.0% 28.4%

SEEK Limited Australia ASX: SEK 14.43 76.0% 4,939.8 6,092.7 7.8x 18.6x 2.7x 782.5 96.3% 39.4%

The Ultimate Software Group, Inc. United States ULTI 167.20 91.2% 4,778.6 4,665.9 8.8x 65.7x 0.1x 529.7 60.0% 13.4%

CEB Inc. United States NYSE:CEB 87.81 97.0% 2,938.1 3,236.9 3.5x 15.6x 2.4x 921.1 64.7% 22.6%

Heartland Payment Systems, Inc. United States HPY 54.82 97.4% 2,006.4 2,550.7 1.1x 14.2x 3.3x 2,390.6 15.2% 7.5%

Cornerstone OnDemand, Inc. United States CSOD 35.52 79.8% 1,915.9 1,923.1 6.9x NM NM 280.1 69.7% -16.9%

WageWorks, Inc. United States NYSE: WAGE 41.62 63.5% 1,487.3 1,114.7 3.8x 25.3x 1.8x 290.5 62.3% 15.2%

Benefitfocus, Inc. United States BNFT 42.18 88.8% 1,205.8 1,143.7 7.7x NM NM 149.4 39.3% -34.7%

Healthstream Inc. United States NasdaqGS: HSTM 30.75 94.9% 958.1 921.7 5.1x 29.8x 0.9x 179.5 56.9% 17.3%

Callidus Software Inc. United States NasdaqGM: CALD 15.03 86.8% 830.8 740.9 5.1x NM NM 145.4 59.7% -2.5%

DHI Group, Inc. United States NYSE:DHX 9.11 79.3% 501.2 578.1 2.2x 7.8x 1.4x 265.7 85.7% 27.9%

Halogen Software Inc. Canada TSX: HGN 10.56 94.7% 233.6 179.1 2.4x NM 0.0x 59.0 71.6% -16.0%

Median $40.99 87.8% $2,472.2 $2,893.8 4.8x 16.0x 1.9x 656.1 66.1% 14.3%

Mean $56.82 85.9% $20,109.5 $19,591.3 5.8x 28.8x 2.0x $4,199.4 66.3% 10.6%

TTM MarginsEnterprise Value / TTM

Industry Valuations

Sector Performance


21

Source: S&P Capital IQ.As of 7/10/2015.

Market

Sector

1 YearReturns

1 YearReturns

80

90

100

110

120

Jul-14 Oct-14 Jan-15 Apr-15

S&P 500 Nasdaq

S&P 500 5.9%

Nasdaq 13.7%

Professional Employer Organizations 5.9%

Payroll & Payroll Processing 16.0%

Benefits Administration 15.8%

HR Technology 0.9%

Staffing 12.2%

Insurance Brokerage 10.4%

60

80

100

120

140

Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

Professional Employer Organizations Payroll & Payroll Processing

Benefits Administration HR Technology

Staffing Insurance Brokerage

• Dedicated team of senior and junior level bankers focused on the PEO sector

• Deep industry knowledge and extensive transaction experience

• Middle market-focused with comprehensive suite of advisory and capital raising services tailored to small-, mid-, and large-scale PEOs

• Exclusive advisor on the buy- and sell-side in the largest PEO transactions currently pending and closed during the last two years

• Vast network of relationships and transaction experience with strategics and private equity groups active in the industry

• Complimentary valuation analysis utilizing proprietary fi nancial modeling tools

• Senior Advisors augment industry knowledge and extend industry network and contacts

Global Business Services

Unparalleled Commitment to the PEO Industry

Deep & Broad IndustryKnowledge and Experience

Relationships with Key PEO Industry Participants

Dedicated Team

• Leads BGL’s Human Capital Management Outsourcing practice

• Over 37 years of corporate fi nance experience encompassing hundreds of M&A and capital raising transactions

• Former President of Hampton Advisors, an advisory and consulting fi rm focused on the HRO industry

• Former Chief Administrative Offi cer at Gevity HR, a large public HRO, responsible for strategy, budgeting, corporate development, legal, HR, investor relations, and compliance

• Former Managing Director at Dresner Partners

• Began career as a Corporate Partner at McDermott Will & Emery

• Supports client engagements through due diligence, fi nancial analysis, valuation, communication, and other advisory services within BGL’s Human Capital Management Outsourcing Practice

• Experience on more than 10 M&A and capital raising transactions

• Former Associate with Rippe & Kingston Capital Advisors

• Career includes positions as Account Manager at Steel Warehouse of Ohio, and Securities Paralegal at Bear Stearns

• B.S., University of Illinois (summa cum laude)

• J.D., Harno Fellow, University of Illinois (magna cum laude)

• M.M., Kellogg School of Management at Northwestern University (honors)

CLIFFORD SLADNICKManaging Director

Group Head

JOHN JAMESONAssociate

JESS HU NGER

Analyst

• B.A., Political Science, Rutgers University

• M.B.A., University of Cincinnati

• Performs due diligence, fi nancial analysis, valuation, and industry research within BGL’s Human Capital Management Outsourcing Practice

• Experience with more than a dozen PEO and HRO clients over the past year

• Former Analyst with KeyBanc Capital Markets, focused on mergers and acquisitions

• B.S., magna cum laude, Fisher College of Business at Ohio State University

PROFESSIONAL EXPERIENCE

One Cleveland Center 1375 East 9th Street

Suite 2500Cleveland, OH 44114

p. 216.241.2800

CLEVELANDOne Magnifi cent Mile

980 N. Michigan AvenueSuite 1880

Chicago, IL 60611p. 312.658.1600

CHICAGOContacts

EDUCATION

EDUCATION

EDUCATION

PROFESSIONAL EXPERIENCE PROFESSIONAL EXPERIENCE

The information contained in this publication was derived from proprietary research conducted by a division or owned or affi liated entity of Brown Gibbons Lang & Company LLC. Any projections, estimates or other forward-looking statements contained in this publication involve numerous and signifi cant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially. We do not expect to, and assume no obligation to update or otherwise revise this publication or any information contained herein. Neither Brown Gibbons Lang & Company LLC, nor any of its offi cers, directors, employees, affi liates, agents or representatives makes any representation or warranty, expressed or implied, as to the accuracy, completeness or fi tness of any information contained in this publication, and no legal liability is assumed or is to be implied against any of the aforementioned with respect thereto. This publication does not constitute the giving of investment advice, nor a part of any advice on investment decisions and nothing in this publication is intended to be a recommendation of a specifi c security or company, nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably suffi cient to form the basis for any investment decision. Brown Gibbons Lang & Company LLC, its affi liates and their offi cers, directors, employees or affi liates, or members of their families, may have a benefi cial interest in the securities of a specifi c company mentioned in this publication and may purchase or sell such securities in the open market or otherwise. Nothing contained in this publication constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security.

Global Business Services

For questions about content and circulation, please contact editor, Rebecca Dickenscheidt, at [email protected] or 312-513-7476.

Focus Areas

• Professional Employer Organizations

• HR Technology

• Payroll & Payroll Processing

• Benefi ts Administration

• Human Resources Outsourcing

• Staffi ng / Recruiting

• Insurance Brokerage

Representative Expertise

Clifford M. SladnickManaging Director & [email protected]

BGL Contact

• Independent investment banking advisory fi rm focused on the middle market

• Senior bankers with signifi cant experience and tenure; partners average over 20 years of experience

• Offi ces in Chicago and Cleveland

• Founding member and exclusive U.S. partner of Global M&A Partners, Ltd., the world’s leading partnership of investment banking fi rms focusing on middle market transactions

• Deep industry experience across core sectors of focus, including: Consumer Products & Retail Services, Environmental & Energy Services, Healthcare & Life Sciences, Human Capital Management Outsourcing, Industrials, Metals & Metals Processing, Plastics & Packaging, and Real Estate

Who We Are

Sell-Side Advisory

Acquisitions & Divestitures

Public & Private Mergers

Special Committee Advice

Strategic Partnerships & Joint Ventures

Fairness Opinions & Fair Value Opinions

All Tranches of

Debt & Equity Capital for:

Growth

Acquisitions

Recapitalizations

Dividends

General Financial & Strategic Advice

Balance Sheet

Restructurings

Sales of Non-Core Assets or Businesses

§363 Auctions

Comprehensive Capabilities

M & A A D V I S O R Y P R I V A T E P L A C E M E N T S

Leading Independent Firm

Primary Research

Industry Benchmarking

Operating Advisor Network

White Papers

Industry Surveys

F I N A N C I A L A D V I S O R Y R E S E A R C H

BGL Business Services Insider - Breakout of the PEO Industry

Documents

Transcript of BGL Business Services Insider - Breakout of the PEO Industry