human capital management insights - bowstring advisors · 2019. 10. 22. · information technology...
TRANSCRIPT
Bowstring Advisors, a division of Citizens Capital Markets, served as the exclusive financialadvisor to Mondo, a New York City-based professional staffing firm specializing ininformation technology and digital marketing, in its acquisition by Addison Group, a leadingprofessional services firm held by Odyssey Investment Partners. Mondo was previouslyheld by the Los Angeles-based private equity group Riordan, Lewis & Haden.
Chris Lewis, Co-Founder of RLH, commented, “We selected Bowstring Advisors for theirindustry-specific expertise and deep knowledge of the competitive landscape. That sectorfocus combined with Bowstring’s responsiveness and leadership in the negotiation processled to a successful outcome for management, Mondo’s founder and RLH.”
This transaction was led by Alan Bugler, Managing Director at Bowstring, leveraging ourexpertise in Human Capital Management and IT & Professional Services.
Preparing for an Economic Contraction with a Growth MindsetBoom and bust cycles are an economic inevitability; since the Great Depression alone, the U.S. economy has experienced 13separate recessions. We’re now 10 years into the current expansion — one of the longest growth periods in our nation’shistory — and the only question about an impending downturn is “when,” not “if.”When remains hard to predict — signs of an imminent contraction are elusive. In February, the national unemployment ratedropped to 3.8%, while the U.S. Leading Economic Index was up. Meanwhile, public companies reported strong earnings forQ4 and 2018 overall.
Even so, we believe it’s never too early to prepare your organization for a turn in the economy. Advance planning to defendyour organization’s economic health and viability can position you to take the offensive at a time when competitors are ontheir heels. We see three key steps to preparing for the inevitable:
1. Identify the indicators that will alert you to an approaching downturn. Different sectors are affected at different pointsin a downturn. Position yourself defensively by being aware of the indicators pertinent to your industry andorganization. These may include a decline in key operational metrics, a slowdown or reversal in revenue growth,margin compression or even clients who are taking longer to pay their bills. Know your early warning signs and be onthe lookout!
2. Establish the thresholds and trigger points at which you will take action — and have a “break glass in case ofemergency” plan to deploy as signals start turning yellow or red. Advance planning helps remove emotion fromdecision making when the pressure of a downturn hits. For human capital-focused businesses, a cost-cutting plantypically means reducing heads. Force your managers to rank staff and top grade their team members with a mantraof, “Reward the best and move on from the rest.”
3. Play offense! The old saying is next year’s growth begins with last year’s actions. While the economy is healthy,cultivate relationships with key constituents: cultivate internal relationships with top producers and leaders as well asexternal relationships with prospective talent; identify acquisition targets that may present an opportunity for strategicacquisitions should the opportunity arise; finally, form relationships with banks and private equity firms. Financingsources will be more comfortable taking risks in a down market with those they know and trust.
The economy continues to send positive signals and our conversations with business owners and financial institutionscontinue to paint a bullish picture for the next 18-24 months. Now is the time to prepare for what we know is inevitable —chance favors the prepared mind!
Human Capital Management InsightsAPRIL 2019
December 2018
Note: The testimonials presented are applicable to the individuals depicted and may not be representative of the experience of others. The testimonials are not paid and are not indicative of future performance or success.
2
Citizens Financial Group Further Expands M&A Advisory Team with Bowstring Advisors Acquisition
Transaction strengthens coverage with additional sector expertise to serve growing client need
PROVIDENCE, RI (February 19, 2019) – Citizens Financial Group, Inc. (“Citizens”) [NYSE: CFG] today announced a definitiveagreement to purchase certain assets of Bowstring Advisors (“Bowstring,” formerly CHILDS Advisory Partners), an Atlanta-based merger and acquisition advisory firm that delivers a range of financial services to commercial and industrial clientsnationwide. This transaction, which follows several other recent additions of key industry talent, products and solutions,further strengthens Citizens’ advisory capabilities.“Clients view Citizens as a trusted partner committed to delivering complete solution sets, quality execution and excellentservice throughout their business life cycle,” said Donald McCree, vice chairman and head of Commercial Banking. “Wecontinue to move decisively to broaden our capabilities. The addition of the highly regarded Bowstring team more thandoubles our M&A advisory business with deep knowledge in key industry sectors such as healthcare, technology andbusiness services, while strengthening our coverage nationally and further enhancing our ability to deliver for our clients.”
“We share Citizens’ ambition to build robust advisory capabilities, as well as their commitment to exceptional client solutions.We look forward to delivering Citizens’ broad set of capital markets capabilities to our growing client base,” said BowstringCEO Jim Childs, who founded the firm in 2009.
Bowstring will become part of Citizens Capital Markets, Inc., complementing Western Reserve Partners, which significantlyincreased the bank’s M&A capabilities when it was acquired in 2017. The addition of the Bowstring team will furtheraccelerate the build out of Citizens’ M&A and financial advisory capabilities. Citizens’ recently released eighth annual MiddleMarket M&A Outlook noted a strong appetite among mid-sized companies for growth through M&A. This transaction furtherstrengthens Citizens’ growing presence in the Southeast and nationally.The transaction, which is expected to close in the first half of 2019, subject to Bowstring receiving FINRA approval, will befunded with cash. Under the terms of the agreement, Citizens’ wholly-owned subsidiary, Citizens Capital Markets, Inc.(“CCMI”), will purchase certain assets of Bowstring and upon closing, Bowstring will operate as a division of CCMI. Terms ofthe transaction were not disclosed.
Debevoise & Plimpton LLP acted as legal advisor to Citizens. Morris Manning & Martin, LLP acted as legal advisor toBowstring on the transaction.
For more information about Citizens, visit the Citizens Commercial Banking website at www.citizensbank.com/commercial.
3
HCM Trading Multiples
LTEN Conference – Meet Our Team
Conferences, Trading Multiples, Indices & Rates
Major Indices & Rates
Upcoming Conferences
June 3 - 6 | Grapevine, TXSteve Dyott, Director and expert within the Education & Training sector, will attend the
LTEN Annual Conference
Schedule a meeting to discuss M&A sector trends and [email protected]
Enterprise ValueLTM Revenue LTM EBITDA
Staffing / Recruiting 0.56x 8.9x
Human Resource Services 2.15x 14.31x
Education & Training 1.35x 10.1x
% Change3 Month 12 Month
Staffing / Recruiting 32,566.10 10.6% (27.2%)
Human Resource Services 181,680.47 17.9% 20.1%
Education & Training 25,350.53 (0.5%) (0.1%)
Dow Jones 25,657.73 13.6% 6.4%
NYSE 12,641.36 13.6% 1.3%
NASDAQ 7,691.52 20.7% 6.6%
AMEX 2,532.24 12.2% 2.6%
S&P 500 2,798.36 10.0% 3.3%
Russell 2000 1,528.17 16.5% (2.5%)
USD/Euro 0.89 1.0% 9.0%
USD/Yen 109.84 (1.2%) 3.9%
USD/Pound 0.76 (4.0%) 6.8%
U.S. Prime Rate 5.500% 0.00 Bps 75.00 Bps
U.S. Treasury - 10 Year 2.440% (35.00 Bps) (39.00 Bps)
LIBOR - 3 month 2.610% (21.18 Bps) 32.43 Bps
Fed Funds Overnight Rate 2.410% 1.00 Bps 73.00 Bps
Close as of 3/22/2019
Source: S&P Capital IQ, public statistics as of 3/22/2019
4
7.6x 7.4x8.4x 8.8x 9.5x 8.8x 9.3x
2012 2013 2014 2015 2016 2017 2018
HCM M&A Valuations
Quarterly Trends in U.S. Middle-Market HCM M&A Activity
M&A Activity and Trends
HCM Public Market Valuations
▪ U.S. middle-market HCM M&A activity experiencednear record highs as buyers and investors continue toput large amounts of capital to work, consistent withthe broader U.S. middle market
▪ Middle-market transaction multiples remain elevated at9.3x through the end of 2018, as buyers are willing topay premium multiples within a competitive market
▪ Public valuations across the HCM space haveexperienced an uptick in Q1 of 2019 since theDecember broader market sell-off
▪ Corporate cash balances and private equity dry powderremain at all-time highs, despite a decline in U.S.middle-market private equity fundraising from highsexperienced in 2017
▪ Strategic acquirors, especially those backed by privateequity, continue to seek out add-on investmentopportunities and represented 78.5% of deal volume in2018
▪ Strong market fundamentals and key indicators,including declining unemployment rate and increasingtemporary penetration, point to healthy M&A activitycontinuing in 2019 across the HCM space, despiteawareness of market cycle considerations
(EV / EBITDA)
(EV / EBITDA)
(# of Deals)
10.3x
14.5x
11.7x12.6x
10.2x
13.9x
11.0x
13.1x
8.6x
13.9x
11.3x 11.0x
8.9x
14.3x
11.2x12.4x
Staffing HR Services Education & Training S&P 500
Q2-18 Q3-18 Q4-18 Q1-19
46 50 79 69 106 95 121 103 103 114 111 91 134 127 118 117Deal Count
Sources: S&P Capital IQ, public statistics as of 3/22/2019; Pitchbook, “2018 Annual US PE Middle Market Report”; Bowstring proprietary M&A database
31 3048 42
5336 43 51 43 44 44
29
5839 32 39
5 0
7 11
19
1822
16 25 23 21
28
34
3030 18
10 20
2416
34
41
5636 35
47 46
34
42
5956 60
Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18
Staffing HR Outsourcing Education & Training
5
Provider of Finance & Accounting consulting / staffing services to a variety of industries
in the U.S.
Provider of workforce management solutions including IT staffing and MSP capabilities
National provider of contract and permanent staffing
solutions in the areas of IT and Digital Marketing
Provider of IT staffing, consulting and managed
services in the U.S.
Provider of system engineering and information technology
staffing and consulting services
Provider of locum tenens and other related strategic staffing services to residents, providers
and facilities
Q1 2019 Q4 2018
ACQUIRED BY
Q4 2018
ACQUIRED BY
Q4 2018 Q2 2018
ACQUIRED BY
Q4 2018
ACQUIRED BY
Notable Staffing Transactions
ACQUIRED BY
A PORTFOLIO COMPANY OFA PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OF
ACQUIRED BY
A PORTFOLIO COMPANY OF
Source: Pitchbook
6
Transportation-specific professional employer organization (“PEO”),
helping clients manage claims and lower costs
PEO, providing businesses to workforce solutions to optimize
existing cost structure
Provider of cloud-based payroll processing and human resource
management services
Pre-employment screening division, providing third party compliance and employment
background screening services
Provider of advanced criminal background screening and
identity verification services to clients in Australia
Professional employer organization, providing human resources, employee benefits, payroll and risk management
services
Q1 2019
Q3 2018 Q3 2018
Q4 2018 Q4 2018
Q4 2018
Notable HR Services Transactions
ACQUIRED BY
A PORTFOLIO COMPANY OF
ACQUIRED BY
A PORTFOLIO COMPANY OF
ACQUIRED BY
ACQUIRED BY
A PORTFOLIO COMPANY OF
ACQUIRED BY
A PORTFOLIO COMPANY OF ACQUIRED BY
A PORTFOLIO COMPANY OF
Source: Pitchbook
7
Developer of an integrated security awareness training and
simulated phishing platform designed to train employees
Operator of an educational training institute designed to
offer test preparation and admission consultancy services
Developer of talent development platform designed to empower people and companies to move
forward in their business
Provider of in-school core reading programs, reading and
math intervention programs and development programs
for students
Provider of SaaS-based contractor management and
safety training services intended to reduce risk and
improve safety
Operator of an e-learning platform designed to offer online
training to both corporationsand colleges
Q1 2019
ACQUIRED BY
Q1 2019
ACQUIRED BY
Q1 2019
ACQUIRED BY
Q4 2018 Q4 2018
ACQUIRED BY
Q4 2018
Notable Education & Training Transactions
ACQUIRED BY
A PORTFOLIO COMPANY OF
ACQUIRED BY
Source: Pitchbook
8
Key Economic IndicatorsU.S. GDP Growth Consumer Confidence & Unemployment
Non-Farm Payroll (1-Qtr Net Change) Temporary Penetration
U.S. Initial Jobless Claims Consumer Price Index
-10%
-5%
0%
5%
10%
$13
$14
$15
$16
$17
$18
$19
Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
Annual Percentage G
rowth
Rea
l GD
P
($ in trillions)
0%1%2%3%4%5%6%7%8%9%10%
-
20
40
60
80
100
120
140
Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
Unem
ployment R
ate
Cons
umer
Con
fiden
ce
Consumer Confidence Unemployment Rate
-
100
200
300
400
500
600
700
800
900
1,000
Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
(Payroll in thousands)
-
50
100
150
200
250
300
350
400
450
Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
(Claims in thousands)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
YoY
Chan
ge
- 500
1,000 1,500 2,000 2,500 3,000 3,500
Tem
pora
ry E
mpl
oym
ent
-40%
-20%
0%
20%
% C
hang
e
(Employees in thousands) Temporary Penetration Rate: 2.03% as of Dec-18
Sources: S&P Capital IQ, U.S. Bureau of Labor Statistics, St. Louis Federal Reserve (FRED)
9
Public Trading StatisticsStaffing / Recruiting
Education & Training
Human Resource Services
Source: S&P Capital IQ, public statistics as of 3/22/2019* Denotes figure excluded from mean / median calculation
Market Data Operating Statistics EV as a Multiple of Revenue
Stock Price LTM LTM CY2019 '17 - '18 3 Year
Company Name 3/22/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Randstad NV 50.51$ 78.7% 9,248.4$ 10,707.0$ 27,263.6$ 1,238.8$ 4.5% 0.4x 8.7x 0.4x 8.1x (2.4%) 7.4%
Adecco Group AG 51.78 73.3% 8,587.5 9,870.8 27,326.5 1,411.7 5.2% 0.4x 7.1x 0.4x 7.4x (3.8%) 2.7%
ManpowerGroup Inc. 80.75 67.5% 4,848.2 5,405.3 21,991.2 917.5 4.2% 0.2x 5.9x 0.3x 6.1x 4.5% 4.4%
ASGN Incorporated 61.82 65.6% 3,255.1 4,313.7 3,399.8 371.7 10.9% 1.3x 11.6x 1.1x 9.6x 29.5% 18.1%
AMN Healthcare Services, Inc. 48.31 70.8% 2,264.1 2,690.8 2,136.1 253.8 11.9% 1.3x 10.6x 1.2x 10.1x 7.4% 13.4%
TrueBlue, Inc. 22.63 75.8% 877.1 910.1 2,499.2 121.6 4.9% 0.4x 7.5x 0.4x 7.7x (0.4%) (2.5%)
Kforce Inc. 34.20 78.6% 839.9 914.0 1,418.4 88.3 6.2% 0.6x 10.4x 0.6x 9.3x 4.4% 2.4%
Kelly Services, Inc. 21.47 66.5% 832.7 799.6 5,513.9 113.6 2.1% 0.1x 6.7x 0.1x 6.3x 2.6% (0.0%)
Cross Country Healthcare, Inc. 7.02 54.4% 253.7 321.5 816.5 27.1 3.3% 0.4x 11.9x 0.4x 11.9x (5.6%) 2.1%
Mean 70.1% $3,445.2 $3,992.5 10,262.8$ 504.9$ 5.9% 0.6x 8.9x 0.5x 8.5x 4.0% 7.4%
Median 70.8% $2,264.1 $2,690.8 3,399.8$ 253.8$ 4.9% 0.4x 8.1x 0.4x 8.1x 2.6% 2.7%
% of 52 Week High
Market Cap.Enterprise
Value
Market Data Operating Statistics EV as a Multiple of Revenue
Stock Price LTM LTM CY2019 '17 - '18 3 Year
Company Name 3/22/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Automatic Data Processing, Inc. 153.81$ 98.6% 67,004.2$ 67,423.5$ 13,839.4$ 3,231.5$ 23.4% 4.9x 20.9x * 4.8x 20.4x * 8.2% 7.2%
Marsh & McLennan Companies, Inc. 92.07 97.0% 46,505.4 51,336.4 14,950.0 3,470.0 23.2% 3.4x 14.8x 3.3x 13.0x 6.6% 5.1%
Paychex, Inc. 78.44 98.3% 28,167.1 27,465.4 3,506.7 1,439.6 41.1% 7.8x * 19.1x 7.4x * 18.5x 9.9% 7.3%
Willis Towers Watson Public Limited Company174.61 92.9% 22,542.5 26,258.5 8,513.0 1,895.0 22.3% 3.1x 13.8x 3.0x 12.1x 3.8% 30.7%
Insperity, Inc. 120.50 90.9% 4,933.0 4,689.8 3,828.5 205.2 5.4% 1.2x 22.9x * 1.1x 17.2x 16.0% 13.7%
TriNet Group, Inc. 59.00 92.7% 4,140.0 4,271.0 3,503.0 273.0 7.8% 1.2x 15.6x 4.6x 11.6x 7.0% 9.6%
Capita plc 1.63 60.4% 2,697.8 3,524.9 4,994.1 345.3 6.9% 0.7x 9.9x 0.7x 6.1x (12.7%) (6.8%)
Barrett Business Services, Inc. 74.50 75.4% 551.9 520.2 940.7 41.2 4.4% 0.6x 12.6x 0.5x 10.2x 2.2% 8.3%
Mean 88.3% $22,067.7 $23,186.2 6,759.4$ 1,362.6$ 16.8% 2.2x 14.3x 2.6x 12.7x 5.1% 9.4%
Median 92.8% $13,737.7 $15,474.2 3,828.5$ 345.3$ 7.8% 2.2x 15.2x 3.1x 12.6x 6.8% 7.8%
% of 52 Week High
Market Cap.Enterprise
Value
Market Data Operating Statistics EV as a Multiple of Revenue
Stock Price LTM LTM CY2019 '17 - '18 3 Year
Company Name 3/22/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Pearson plc 11.21$ 82.4% 8,694.7$ 8,985.2$ 5,262.5$ 694.6$ 13.2% 1.6x 11.6x 1.7x 9.1x (13.7%) (2.6%)
Grand Canyon Education, Inc. 113.90 87.5% 5,442.0 5,312.5 845.5 312.2 36.9% 6.3x * 17.0x 6.8x * 16.3x (13.2%) 2.8%
Strategic Education, Inc. 132.54 85.6% 2,842.8 2,493.9 634.2 94.9 15.0% 3.9x 26.3x * 2.6x 11.5x 39.4% 13.4%
Adtalem Global Education Inc. 45.97 78.2% 2,656.1 2,658.9 1,230.6 254.1 20.6% 2.2x 10.5x 2.1x 9.6x 7.4% (12.9%)
John Wiley & Sons, Inc. 44.29 61.7% 2,531.1 3,030.1 1,786.1 305.9 17.1% 1.7x 9.9x 1.7x 7.7x 0.9% 1.0%
Scholastic Corporation 37.93 79.1% 1,335.6 1,008.5 1,679.4 114.9 6.8% 0.6x 8.8x 0.6x 6.6x 2.5% 0.7%
K12 Inc. 32.60 95.0% 1,259.4 1,090.9 977.9 71.1 7.3% 1.1x 15.3x 1.1x 8.4x 10.6% 2.4%
American Public Education, Inc. 30.10 65.2% 499.2 288.8 297.7 50.9 17.1% 1.0x 5.7x 1.0x 5.5x (0.5%) (3.2%)
Franklin Covey Co. 24.45 81.8% 340.6 369.8 215.7 11.1 5.2% 1.7x 33.3x * 1.7x 19.3x 11.5% 1.3%
GP Strategies Corporation 12.31 53.5% 203.9 307.0 515.2 27.9 5.4% 0.6x 11.0x 0.5x 7.1x 1.2% 1.7%
Bridgepoint Education, Inc. 6.20 45.5% 168.5 14.5 443.4 10.7 2.4% 0.0x 1.4x * 0.0x 0.9x (6.7%) (7.6%)
Lincoln Educational Services Corporation 3.04 91.1% 76.4 107.6 263.2 5.0 1.9% 0.4x 21.5x * 0.4x 7.7x 0.5% (4.9%)
Mean 75.6% $2,170.9 $2,139.0 1,179.3$ 162.8$ 12.4% 1.4x 11.2x 1.2x 9.1x 3.3% (2.6%)
Median 80.4% $1,297.5 $1,049.7 739.8$ 83.0$ 10.2% 1.0x 10.5x 1.0x 8.0x 1.0% 0.8%
% of 52 Week High
Market Cap.Enterprise
Value
10
Stock Market FundamentalsSubsector Index vs. S&P 500
Valuation Trend Data (EV / EBITDA)
-
50
100
150
200
250
Staffing / Recruiting Human Resource Services Education & Training S&P 500
3 mos. 12 mos. 3 yrsStaffing / Recruiting 12.7% (25.5%) 0.8%Human Resource Services 21.9% 23.3% 50.8%Education & Training 4.7% 0.9% 24.5%S&P500 15.9% 5.9% 36.5%
Source: S&P Capital IQ, public statistics as of 3/22/2019
-
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
21.0x
Staffing / Recruiting Human Resource Services Education & Training
3 mos. 12 mos. 3 yrsStaffing / Recruiting 6.8% (17.9%) (6.4%)Human Resource Services 6.5% 1.0% 23.5%Education & Training 7.7% 0.7% 58.3%
Bowstring Advisors, a division of Citizens Capital Markets 3550 Lenox Road NE, Three Alliance Center, Suite 1200, Atlanta, GA 30326 404.461.4600 bowstringadvisors.com
Bowstring Core Coverage
Human Capital Management
▪ Staffing / Recruiting
▪ Education & Training
▪ HR Services
▪ BPO / Professional Services
Healthcare
▪ Revenue Cycle Management
▪ Provider Services & Technology
▪ Payer Services & Technology
▪ IT Services
IT & Professional Services
▪ Consulting
▪ Solution Providers
▪ Managed Services
▪ Tech-Enabled Services
Industrial Services
▪ Facility
▪ Distribution / Supply Chain
▪ Environmental
▪ Infrastructure
Software
▪ Human Resources
▪ Marketing
▪ Industrial
▪ Vertical SaaS
▪ Data & Analytics
We combine sector intelligence with a client-focused approach to realize your company’s true value.We are the next generation middle-market investment bank.
Quick Facts
▪ 80+ professionals across the U.S. with headquarters in Atlanta
▪ 100+ M&A transactions closed since 2016
▪ Named U.S. Boutique Investment Bank of the Year by The M&A Advisor
▪ Nationwide coverage provides access to strategic buyers, financial sponsors and family offices
Service Offerings
Mergers & Acquisitions
Capital Raises
Financial & Strategic Advisory
BOSTONATLANTA LOS ANGELES©2019 Citizens Financial Group, Inc. All rights reserved. Banking products and services are offered by Citizens Bank, N.A. Member FDIC. Securities products and services are offered through Citizens Capital Markets, Inc., Member FINRA, SIPC.
Citizens Bank & Citizens Commercial Banking are brand names of Citizens Bank, N.A. Citizens Capital Markets and Bowstring Advisors, a division of Citizens Capital Markets are brand names of Citizens Financial Group, Inc.
Human Capital Management Team
Steve Dyott
Director
Alan Bugler
Managing DirectorJim Childs
Managing Partner & CEO
Dave Phillips
Managing DirectorJason Wallace
Managing Director
Cooper Mills
Managing Director
Paul Marmol
AssociateRyan Sugrue
DirectorRobert Womble
Vice President
Bowstring Advisors, a division of Citizens Capital Markets 3550 Lenox Road NE, Three Alliance Center, Suite 1200, Atlanta, GA 30326 404.461.4600 bowstringadvisors.com
Bowstring Recent HCM Transactions
