ZURICH (Reuters) - Adecco ADEN.VX, the world's largest staffing company, is buying American rival MPS Group MPS.N for $1.3 billion, boosting its high-margin and more recession-resilient professional staffing business.
Adecco also said it was launching a 900 million Swiss franc ($888 million) mandatory convertible bond to accommodate the cash deal. One rating agency promptly put its investment-grade credit rating on watch.
The MPS deal, plus the recent acquisition of Britain's Spring Group SPGR.L, means close to 25 percent of Adecco revenue will be generated in the more lucrative professional staffing arena, up from 17 percent in 2008.
“We are delighted to have MPS Group become part of the Adecco Group, in a move that will see Adecco taking the world-wide lead in professional staffing,” Chief Executive Patrick De Maeseneire said in a statement. Later, he said this was the last big acquisition on the cards.
Adecco will pay $13.80 per share for MPS, a nearly 24 percent premium to its Monday closing price of $11.14 on the New York Stock Exchange.
Adecco also sounded a more upbeat tone on its trading environment, saying market conditions had improved during the third quarter. It will report quarterly figures on November 5.
“This acquisition is fully in line with Adecco’s strategy to strengthen its professional staffing business, which offers higher margins and more attractive growth opportunities,” Helvea analyst Chris Burger said in a note.
For a graphic on the deal click:
The move marks a significant coup for De Maeseneire who took the helm at Adecco in June from Dieter Scheiff. Adecco failed last year in its bid to buy professional staffing group Michael Page MPI.L. Many observers believe this was the reason for Scheiff's departure.
"After the unsuccessful try to take over Michael Page, MPS Group was chosen, which has a similar, or even slightly bigger, size in terms of sales," Burger said, adding the deal puts Adecco ahead of rival Robert Half International Inc RHI.N in professional staffing.
The U.S. company generates 42 percent of its sales from information technology staffing, and 60 percent of its revenue from North America.
Adecco shares were down 5.8 percent at 51.40 Swiss francs. MPS shares rose $2.40, or 21.5 percent, to $13.54.
Among shares of other U.S.-based specialty staffing firms, CDI Corp CDI.N gained 2.7 percent to $13.95, Hudson Highland fell 1.7 percent to $3.59, while Robert Half lost 1 percent at $26.35.
Global employment services firm Manpower Inc MAN.N, which reports quarterly results on Wednesday, was up 1 percent to $62.12.
“We do not expect any significant changes in the competitive environment in the near term,” William Blair analyst Timothy McHugh wrote in a research note.
“We have no reason to believe that any other companies in this space are close to merging with another company, and Adecco has said that the MPS transaction will be its last major acquisition for a while.”
Adecco will now focus on organic growth, De Maeseneire told Reuters. “The big acquisitions are done now,” he said. “We now have a strong platform to grow organically.”
Shares in staffing company USG People USGP.AS fell on the news as hopes that Adecco would snap up its Dutch rival faded fast.
One Zurich-based trader said the convertible bond was putting pressure on Adecco shares, since existing holders would see a dilution of about 8.7 percent. “We will (also) see some hedge funds switching from the shares to the bond,” he said.
MPS Group’s board of directors has unanimously backed Adecco’s offer.
“At first sight, the acquisition looks expensive at 10 times historic EV/EBITDA,” said Kepler Capital Markets analyst Fabian Baumann. “However, it is compliant with the strategy to increase professional staffing exposure.”
Florida-based MPS Group, which had revenue of 1.5 billion euros ($2.24 billion) in 2008, will also boost Adecco’s UK and Canada business, and the deal will add to adjusted earnings per share in the first year, Adecco said.
Standard & Poor’s said on Tuesday it had placed its BBB rating on Adecco on CreditWatch with negative implications as a result of the deal.
But Chief Financial Officer Dominik de Daniel said he was confident Adecco would be able to keep its investment grade rating thanks to the convertible mandatory bond offering.
The MPS deal is expected to close in the first quarter of 2010.
Adecco's news comes as Dutch group Randstad NV RAND.AS said Britain's NorthgateArinso was buying its human resources services unit Cian.
Adecco said Deutsche Bank DBKGn.DE was acting as global coordinator for the bond offering and the bank was also acting together with Credit Suisse CSGN.VX as joint lead managers and joint bookrunners for the offering.
Deutsche Bank said it had also been the sole financial advisor to Adecco on the MPS deal. MPS said BofA Merrill Lynch BAC.N was acting as its financial adviser.
($1=1.013 Swiss Franc)
Reporting by Katie Reid; additional reporting by Nick Zieminski in New York and Ajay Kamalakaran in Bangalore; editing by Will Waterman, John Wallace and Gunna Dickson
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