September 10, 2014 / 7:35 AM / 5 years ago

UPDATE 2-Japan staffing firm Recruit plans IPO worth $1.8 bln

* Listing set for Oct. 16

* Comes after a string of disappointing Tokyo debuts

* Recruit has aggressively required overseas rivals

* Aims to be world’s top staffing firm by 2020 (Adds details on offering, comparison with Adecco)

By Ritsuko Ando

TOKYO, Sept 10 (Reuters) - Japan’s largest recruitment company Recruit Holdings said it is planning an initial public offering worth $1.8 billion, which will test investor appetite for big Tokyo listings after some weak debuts this year.

The IPO will help Recruit pay for future acquisitions as the company, one of the world’s top five staffing firms, seeks to become the world’s biggest by 2020. It has snapped up a slew of foreign rivals in recent years, including U.S. online job search site Indeed.com.

The size of the offering, set to be Tokyo’s second-biggest this year after a $3.2 billion listing by smartphone screenmaker Japan Display, came in at the lower end of expectations. But some investors were optimistic about its prospects, particularly as it has a range of businesses.

“Recruit has a leading position in several areas, whether it’s recruiting or publishing real estate information and bridal information. It has growth potential,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management.

The company plans to raise up to 100 billion yen ($938 million) through the issue of new shares, the sale of treasury stock and a potential over-allotment portion. The rest of the funds raised will go to existing shareholders.

Some 69 million shares will be offered in total, around 40 percent of which will target overseas investors.

Recruit said it could have some 574 million outstanding shares at the time of its Oct. 16 listing, which at an indicative price of 2,800 yen would give it a market value of roughly $15 billion. Final pricing is set for Oct. 6.

ABOVE ADECCO?

A market cap of $15 billion would put it ahead of Adecco , the world’s biggest staffing firm by sales, which has a market value of around $13.3 billion.

In terms of just staffing revenue, Recruit ranked no. 5 in the world in 2012 with 1.5 percent market share compared to 6.5 percent for Adecco, according to Staffing Industry Analysts.

A potentially higher market cap for Recruit may lie in its higher profit margins. Its margin for earnings before interest, taxes, depreciation and amortization in the last financial year was 15 percent, compared to around 5 percent for Adecco.

Founded in 1960 by Hiromasa Ezoe, a Tokyo University student, Recruit grew rapidly but stumbled in the late 1980s, when it became the centre of a famous shares-for-favors corruption scandal that brought down the Japanese government.

In recent years, it has aggressively bought overseas rivals, seeking to offset a shrinking market in Japan, whose population is rapidly ageing. It has acquired U.S. staffing service CSI, Advantage Resourcing, Staffmark Holdings as well as Indeed.com.

Recruit made 1.2 trillion yen in operating revenue in the past financial year, an increase of 13.6 percent, helped by its Indeed.com unit and a favourable exchange rate. But net income declined 9 percent as operating expenses increased.

UNCERTAIN IPO MARKET

Recruit will, like restaurant operator Skylark Co Ltd which is planning an IPO of up to $1.1 billion, come to market at an uncertain time for Tokyo offerings.

Earlier big listings this year have flopped. Some of that is due to company-specific reasons. Japan Display’s shares, for example, have skidded 35 percent from their IPO price as investors fret about its ability to compete with Asian rivals

Euphoria over Prime Minister Shinzo Abe’s growth policies has also given way to more cautious views.

Although Tokyo stocks have recently recovered from a sell-off earlier this year, they are still down 3 percent for the year to date despite a weaker yen. Bourse data also shows foreign investors have sold a net 1 trillion yen in Japanese stocks, including the cash and futures markets, so far this year.

Joint global coordinators for the offering are Nomura Securities, Morgan Stanley MUFG, Mizuho Securities and SMBC Nikko Securities. ($1 = 106.4 Japanese yen) (Additional reporting by Ayai Tomisawa; Editing by Edwina Gibbs)

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