peo industry itself, and the current valuations of peos ...€¦ · • success of smb market key...
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Insider
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
ChicagoOne Magnifi cent Mile980 N. Michigan AvenueSuite 1880Chicago, IL 60611
ClevelandOne Cleveland Center1375 East 9th Street Suite 2500Cleveland, OH 44114
bglco.com
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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%
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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%
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Spotlight On:
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The Breakout of the PEO Industry
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”
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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
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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:
Business Services Insider
The Breakout of the PEO Industry
On a scale of 1 to 5 (with 5 being the highest) please rank
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.”
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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
Business Services Insider
On a scale of 1 to 5 (with 5 being the highest) please rank
each of the following PEO markets in terms of further
penetration opportunity:
On a scale of 1 to 5 (with 5 being the highest) please rank
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
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Spotlight On:
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The Breakout of the PEO Industry
On a scale of 1 to 5 (with 5 being the highest) please rank
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.”
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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
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Spotlight On:
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The Breakout of the PEO Industry
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
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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
Source: S&P Capital IQ.
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
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Spotlight On:
Business Services Insider
The Breakout of the PEO Industry
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
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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
Business Services Insider
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Business Services Insider
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 its 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
Business Services Insider
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
Business Services Insider
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
Business Services M&A Activity
“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.
SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.
Business Services Insider
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.”
SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.
Business Services Insider
Business Services M&A Activity
18
Industry Valuations
Relative Valuation Trends
Business Services Insider
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
EV/EBITDA 12.2x 12.2x 15.1x 9.5x 11.3x 11.4x 10.4x 12.1x 13.3x 16.4x 15.1x 17.3x 17.3x 16.3x 15.2x 13.6x 15.3x 15.6x 15.8xEV/Revenue 3.4x 4.2x 4.1x 3.4x 3.4x 3.9x 3.5x 3.7x 4.2x 4.3x 4.6x 6.2x 6.2x 4.8x 4.4x 4.2x 5.4x 4.9x 4.8x
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
EV/EBITDA 12.9x 12.6x 12.0x 10.1x 11.6x 11.7x 11.5x 12.2x 11.5x 12.8x 12.8x 14.0x 15.5x 14.7x 13.8x 15.8x 15.2x 15.3x 15.8xEV/Revenue 4.3x 4.6x 3.9x 3.6x 4.0x 4.4x 4.0x 4.1x 4.2x 4.6x 3.7x 4.2x 5.0x 5.1x 4.7x 5.2x 5.5x 5.7x 6.0x
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
EV/EBITDA 15.1x 14.9x 11.5x 7.6x 8.6x 9.2x 8.1x 8.9x 9.6x 9.3x 9.4x 12.1x 12.6x 12.1x 10.9x 9.6x 11.0x 12.0x 10.5xEV/Revenue 0.8x 0.8x 0.6x 0.4x 0.4x 0.5x 0.4x 0.4x 0.4x 0.5x 0.6x 0.6x 0.7x 0.7x 0.7x 0.6x 0.6x 0.6x 0.7x
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
EV/EBITDA 10.4x 10.8x 10.6x 8.6x 9.4x 9.5x 9.7x 9.8x 9.6x 10.7x 11.0x 12.0x 13.4x 11.4x 12.0x 11.6x 12.2x 12.4x 12.4xEV/Revenue 2.4x 2.0x 1.9x 1.7x 2.0x 2.0x 1.9x 1.8x 1.9x 2.0x 2.1x 2.3x 2.4x 2.4x 2.5x 2.4x 2.5x 2.4x 2.6x
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
EV/EBITDA 13.1x 11.6x 10.5x 9.0x 11.3x 11.6x 11.5x 11.9x 11.4x 12.5x 13.0x 14.1x 16.2x 14.0x 13.6x 14.0x 14.8x 15.1x 13.1xEV/Revenue 1.4x 1.5x 1.4x 1.2x 1.4x 1.5x 1.4x 1.5x 1.6x 1.8x 1.8x 2.0x 2.4x 1.3x 1.2x 1.1x 1.3x 1.3x 0.9x
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
Relative Valuation Trends
Business Services Insider
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).
Source: S&P Capital IQ.
($ 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
Business Services Insider
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 rdickenscheidt@bglco.com 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 & Principal312.658.4779csladnick@bglco.com
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
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Sell-Side Advisory
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Growth
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