Recruitment A Private Equity Perspective Chris Harper Managing
Director Baird Capital Partners Europe
Slide 2
About The Presenter Chris Harper 25 years within private equity
Managing Director at Baird Capital Partners Significant experience
of investing in the sector: 2
Slide 3
Strictly Confidential Aston Carter Baird US introduced the
acquirer of the business 01 Feb 2011 23:49 GMT Chris Harper,
director of BCPE, said: Aston Carter was our 10th investment in the
human capital sector and demonstrates that a focused strategy of
investing in sectors that we know will realise strong results. Led
to 2.5MMX exit Value Creation ( in millions) 2012 SE Mid-Market
Management Team of the Year Actions: Accessed Baird resources to
develop strategy for overseas growth and exit Introduced John
Hubert as non-executive Chair, recruited new CFO and developed
senior management structure Incentivised the senior managers to
drive continued growth whilst retaining the motivation of the
founders Significantly improved MIS reporting and financial/cash
management to support growth Baird US introduced the acquirer of
the business via business solutions conference 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 profit growth early in the recovery 3
Slide 4
Baird: Human Capital is a core focus across the group Private
Equity Investing Investment Banking Advising Equity Capital markets
Researching 4
Slide 5
Unparalleled Experience Dedicated coverage of all major human
capital sectors Staffing HRO/BPO RPO PEO Payroll Benefits Admin.
Recruiting HR ERP Corporate Training Transaction Experience Over 80
M&A and equity transactions since 1995 1) Illustrates select,
relevant market participants. Human Capital Services Focus HR
Technology HR Professional Services HR Outsourcing Services Bairds
HCS Platform (1) 5
Slide 6
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) Mark
MarconCurrent Coverage Human Capital Services Boiler (BoilerMod:
09/19/11) Experienced and Dedicated Research 6
Slide 7
Human Capital Services Boiler (BoilerMod: 06/30/11) Modified
Boiler (09/19/11) Track record of successful transactions provides
access to, and credibility with, the global buyer group Undisclosed
Value 2002 2005 2001199720032000200419991998
20072009200620102008201120122007 A Long History and Commitment to
the Human Capital Sector 7
Slide 8
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 8
Slide 9
The Recruitment Industry is attractive to PE Investors 9
Slide 10
What makes the sector attractive to Private Equity? A business
where shareholders are open to investment That could be made
attractive to a buyer at the time of exit That will enable the
value of the investment to double in value over 4 to 5 years Large
number of recruitment businesses led by hungry smart people Good
history of M&A, secondary and IPO markets providing exits
Proven ability to grow profits (cycles allowing) 10
Slide 11
Where we are in the cycle Valuation Management depth and
capability Positive market dynamic High quality company Clear exit
potential Key Investment Criteria 11
Slide 12
Indexed Share Price Performance Since 31 October 2008 Source:
Capital IQ as of 22 June 2012. 27.2% 80.9% 8.2% 79.8% 26.0% 37.8%
The general staffing market is recovering from early 2009 trough
levels, although remains sensitive to economic conditions and
sentiment Staffing Sector Indexed Share Price Performance 12
Slide 13
Factors influencing valuation Primarily: Profits Scale Other
factors: Sector Financial dynamics (margin, drop down) Perm v
contract Valuation 13
Slide 14
Median EV / EBITDA Multiple10 Year Median EV / EBITDA (LTM)
Median Revenue GrowthMedian EBITDA Margin Source: Company accounts,
Bloomberg and Capital IQ as of 22 June 2012. Note: All figures are
calendarised to 31 December year end.. 2011A2012E Staffing Sector
Valuation and Operating Performance 14
Slide 15
Staffing Large Cap (EV / NTM EBITDA) Staffing Small Cap (EV /
NTM EBITDA) Total Mean: 6.7x Total Median: 6.2x Full year 2011 and
Q1 2012 results have generally been inline or above expectations:
North American markets continued to grow modestly European markets
were more robust than forecast Cyclical vs. structural growth
catalysts within Large Cap portfolios Cyclical GDP growth (post
recovery) will fade over the next few years to a normalised level
Limited structural upsides in most developed markets Structural
growth opportunities in emerging markets remain a key growth
catalyst Wide disparity in valuation exists amongst Small Cap
staffing companies as geographic and end market focus are key
differentiating factors Source: Capital IQ as of 22 June 2012.
Commentary Mean: 10.3x Median: 10.0x Mean: 8.5x Median: 8.5x Mean:
3.7x Median: 3.3x Total Mean: 9.8x Total Median: 10.0x Mean: 7.2x
Median: 6.7x 20042005 20062007 20082009201020112012 20042005
20062007 20082009201020112012 Staffing Sector Historical Valuation
Analysis 15
Slide 16
Staffing Mid Cap North America (EV / NTM EBITDA) Staffing Mid
Cap Europe (EV / NTM EBITDA) Total Mean: 8.9x Total Median: 9.4x
North American Mid Cap valuation levels are more subdued as
earnings recovery was underway North American Mid Cap staffing
companies have seen top line year on year growth in 2011 despite
sluggish economic conditions European Mid Cap companies showed a
significant improvement in Q1 2012 following a comparatively
subdued H2 2011 Higher European multiples also reflect the better
business and margin profile of constituents of the European index
However economic concerns in Europe have impacted valuations, which
have recovered in Q1 2012 as European economies began to stabilise
uncertainty remains ongoing Commentary Mean: 7.7x Median: 7.4x
Mean: 10.8x Median: 10.8x Mean: 5.6x Median: 5.6x Total Mean: 8.1x
Total Median: 7.5x Mean: 6.6x Median: 5.7x Margin recovery remains
a key value driver as operating leverage are expected to further
improve through the recovery 20042005 20062007 20082009201020112012
20042005 20062007 20082009201020112012 Source: Capital IQ as of 22
June 2012. Staffing Sector Historical Valuation Analysis (contd)
16
Slide 17
Select Public Companies Supplementary Financial Data Source:
Capital IQ as of 22 June 2012, research and press articles. (Local
currency in millions, except per share data) 17
Slide 18
DateCompanyVendorBuyerEVEV/EBITDA Jul-11Red
CommerceInflexionDunedin448.0 Nov-10PulseHgBlackstone756.5
Jul-10Teaching PersonnelRJDGraphite456.9
Jun-10ICSInflexionBlackstone1107.0 Nov-09FDMP2PInflexion254.7
Dec-08Air EnergiFoundersPalatine305.6
Nov-07AMSAdventGraphite10012.0 Jul-07Teaching
PersonnelFoundersRJD246.8 Mar-07Aston CarterFoundersBaird427.8
Sep-06NESBridgepointGraphite868.0 Mean (excl AMS)7.3 Median7.0 Debt
availability is currently a brake on valuations Private equity
multiples are in the range 5.5x to 7.5x EBITDA Private Equity
Valuations 18
Slide 19
NFI, margins, profits, flexibility Client dependency Geographic
footprint Scalable and repeatable Activities, sector coverage &
focus Quality of earnings Contract vs Perm Management Growth left
on the table Can I make a return out of an investment in this
business Other Investment Considerations 19
Slide 20
Sector is attractive to private equity buyers Valuations are:
5.5x to 7.5x LTM EBITDA Debt availability is currently a brake on
both valuations and ability to execute Critical success factors
include: Management for now and at exit Clear vertical sector focus
and discipline Scale and geography Exit planning: Ultimately being
able to answer the question...Who will buy and why? Summary 20