human capital management insights - bowstring advisors · the state of the human capital market and...
TRANSCRIPT
Evolving HCM Priorities & LandscapeThe state of the Human Capital market and the latest trends are often as multifaceted as the individuals that comprise it. Withthat in mind, we’ve highlighted a few of the most notable themes below that remain at the forefront of industry executives'minds. We’d be remiss if we didn’t start with two of the most notably discussed topics, Employment & the Economy, both ofwhich influence nearly all the other themes presented. Furthermore, they offer an interesting juxtaposition of signals of strengthand weakness.Employment: September unemployment rose by 136,000 and the unemployment rate continued its decline to 3.5%. Thenumber of long term unemployed remained steady and labor force participation edged up. Eleven years into the current cycle,many are asking if the current level of unemployment is the new norm and dedicating their attention to how this might impactbusinesses and their pursuit of human capital talent.
The Economy: The BLS data above would indicate that the economy’s growth remains sound – a message of strength FederalReserve policy makers highlighted this past September while at the same time electing to move forward with their secondinterest rate reduction since July. While the Fed is “guarding against elevated risks to the continued expansion,” many are lessoptimistic with the majority of September’s WSJ Economic Forecasting participants indicating that they believe a recession isimminent in 2020 (45% of participants) or 2021 (35%) with only 22.5% looking farther out.
The Skills Gap & Upskilling: CEOs’ concern over the availability of skills has increased dramatically over the past 5+ years with~80% of CEOs reporting this concern in 2018 and 2019. Importantly, those CEOs have posed risks to effective innovation giventhe supply constraints on talent. Unique to 2019, more CEOs are looking to reskill or upskill their existing workforce or availabletalent rather than simply looking to hire from outside the industry or from competitors. Reskilling and upskilling will be critical fororganizations, yet many acknowledge they lack the tactical capability to implement.The Gig Economy & Convergence: The Gig Economy today represents an estimated $4.5 trillion market. 52 million Americansengaged in gig work in 2018, representing roughly 34% of the workforce. The Gig Economy, which encompasses human cloudworkers, temporary agency business, independent contractors and SOW consultants, is huge and growing. There has longbeen debate as to which segment within the Gig Economy represents the future of our workforce (Human Cloud vs. TraditionalStaffing), but what we continue to see is convergence of solutions among the market participants with online marketplaces andtraditional staffing providers both developing hybrid solutions. Both sides are striving to connect with and optimize the talentsupply via mobile and technology to address the preferences of today’s Gig Economy workforce.
We look forward to discussing these and other topics like the AB5 legislation, cybersecurity, AI and of course M&A at upcomingindustry conferences.
Human Capital Management InsightsOctober 2019
Source: PWC Talent Trends 2019 Report; Staffing Industry Analysts
November 6 - 8 | Las VegasFour senior level professionals with expertise
in Healthcare Staffing will attend the
SIA Healthcare Staffing Summit
Schedule a meeting to discuss M&A sector trends and insights
2
HCM Trading Multiples
Conferences, Trading Multiples, Indices & Rates
Major Indices & Rates
Reflections from SIA Conferences
Source: S&P Capital IQ, public statistics as of 10/18/2019
During our conversations at this year’s SIA Gig Economyand ASA Staffing World, we heard the following threestatements mentioned on a consistent basis:
Technology is the future of the staffing industry:Staffing firms are quickly adopting new technology todifferentiate, grow faster and increase margins.Automation across all recruiting functions is top of mind.AI-related tools are being introduced to automatecandidate sourcing, assessments, interviews, selectionand onboarding. Companies are also implementingRobotic Process Automation (RPA) software to automateroutine manual tasks. Technology is clearly changing theway traditional HCM companies operate in the future.
The nature of work changed: Companies and suppliersof talent are having to adapt quickly, as businessesredefine the definition of “the workforce”. Sources fortalent are evolving and managing these channels will bekey to future growth – traditional workers, independentcontractors, Gig workers, talent pools / clouds, outsourcedand managed services. Best in class suppliers of talent arelearning how to optimize these channels to help clientsachieve their business objectives.
AB5 will have a major impact: The legal landscapesurrounding the alternative use of talent is continuing toevolve and California is leading the way with the signingof AB5 legislation. AB5 could potentially reclassifymillions of independent contractors as employees anddramatically reshape the future of independentworkforces across the country. Of primary concern areincreased costs to businesses and consumers.
While these topics are not new, they are now top of mindas the dynamics of the industry continue to shift.
% Change3 Month 12 Month
Staffing / Recruiting 33,322.71 (0.6%) 7.4%
Human Resource Services 192,442.45 (3.5%) 20.6%
Education & Training 19,549.71 (21.0%) (18.3%)
Dow Jones 26,827.64 (1.7%) 5.5%
NYSE 13,088.61 (1.2%) 4.5%
NASDAQ 8,162.99 (1.4%) 8.1%
AMEX 2,459.81 (5.0%) (7.8%)
S&P 500 3,006.72 (1.1%) 7.9%
Russell 2000 1,550.14 (1.3%) (1.6%)
USD/Euro 0.90 0.8% 3.3%
USD/Yen 108.52 0.7% (3.3%)
USD/Pound 0.78 (3.0%) 1.6%
U.S. Prime Rate 5.00% (50.00 Bps) (25.00 Bps)
U.S. Treasury - 10 Year 1.76% (28.00 Bps) (141.00 Bps)
LIBOR - 3 month 1.95% (32.44 Bps) (51.58 Bps)
Fed Funds Overnight Rate 1.85% (56.00 Bps) (34.00 Bps)
Close as of 10/18/2019
Enterprise ValueLTM Revenue LTM EBITDA
Staffing / Recruiting 0.63x 9.43x
Human Resource Services 1.91x 16.26x
Education & Training 1.32x 12.24x
Recent Awards & Award Nominations
3
7.4x8.4x 8.8x 9.5x 8.8x 9.4x 8.7x
2013 2014 2015 2016 2017 2018 2019 YTD
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 has continued ata steady clip in 2019, riding 2018 highs
▪ Middle-market transactions are benefiting from healthymultiples, driven by high strategic interest and acompetitive environment among financial sponsorswishing to deploy capital in the space
– Larger, sophisticated players with tech-enabledsolutions or niche offerings have the potential totrade well north of 10x EBITDA
▪ Strategic acquirors seek to make add-on investments inattempt to better position themselves through marginenhancement and diversification ahead of potentialmarket cycle considerations
▪ Public valuations across the HCM space haveexperienced an uptick in 2019 since the broadermarket sell-off at the end of 2018
▪ Strong market fundamentals and key economicindicators, including a historically low unemploymentrate and increasing temporary penetration, point tohealthy M&A activity continuing in 2019 across theHCM space, despite awareness of market cycleconsiderations
(EV / EBITDA)
(EV / EBITDA)
(# of Deals)
Sources: S&P Capital IQ, public statistics as of 10/21/2019; Pitchbook, “2Q 2019 North American M&A Report”; Bowstring proprietary M&A database
31 3048 42
5336 43
5143 44 44
29
58
39 3240 35
45
5 0
711
19
1822
16 25 23 21
28
34
3030 18 23
24
10 20
2416
34
41
5636 35
47 46
34
42
5956 61
5347
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 Q1-19 Q2-19
Staffing HR Outsourcing Education & Training
9.7x
14.1x
10.2x11.7x
9.6x
13.7x
10.2x
12.9x
9.2x
15.6x
12.8x 12.9x
9.4x
16.3x
12.2x13.0x
Staffing HR Services Education & Training S&P 500Q1-19 Q2-19 Q3-19 Q4-19
4
Multi-line staffing and recruitment portfolio of
companies across healthcare, IT, F&A and C/LI verticals
Provider of staffing and consulting solutions to ERP,
healthcare IT, life sciences and government sectors
National management, technology and financial
consulting firm
Private placement of global alternative legal service provider
Provider of occupational, physical and speech therapy
staffing solutions
Offers financial consulting and transaction advisory services
Q4 2019 Q3 2019
ACQUIRED BY
Q3 2019
ACQUIRED BY
Q3 2019 Q2 2019
ACQUIRED BY
Q2 2019
ACQUIRED BY
Notable Staffing Transactions
ACQUIRED BY
ACQUIRED BY
Source: Pitchbook
A PORTFOLIO COMPANY OF A PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OFA PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OF
5
A professional employer organization (PEO) providing
outsourced HR, payroll, benefits and risk & compliance solutions
Offers comprehensive background screening and
verification services
Provides background screening and credentialing services
to healthcare organizations in the U.S
Provider of business process outsourcing (BPO) services to the
staffing and recruiting industry
A professional employer organization (PEO), providing
HR solutions to small and mid-sized business
Provides recruitment process outsourcing (RPO), and talent
acquisition & management solutions internationally
Q3 2019
Q1 2019 Q1 2019
Q2 2019 Q2 2019
Q1 2019
Notable HR Services Transactions
ACQUIRED BY ACQUIRED BY
ACQUIRED BY
ACQUIRED BY
A PORTFOLIO COMPANY OF ACQUIRED BY
A PORTFOLIO COMPANY OF
Source: Pitchbook
ACQUIRED BY
A PORTFOLIO COMPANY OF
A PORTFOLIO COMPANY OF
6
Provides training and consulting in behavior management, crisis intervention and dementia care for human service professionals
Training platform offering mentor-led programs on software engineering, data analytics, data
science and product design
Comprehensive provider of environmental health & safety
(EHS) and emergency care compliance and training solutions
Family of brands that provides learning solutions for licensed professionals across various
industries, through its proprietary SaaS platform
Partners with universities to create and manage skills-based training programs around web development, data analytics,
UX/UI and cybersecurity
Provider of innovative online proctoring solutions to enhance
the level of authenticity for educational institutions
Q4 2019
ACQUIRED BY
Q3 2019
ACQUIRED BY
Q3 2019
ACQUIRED BY
Q2 2019 Q2 2019
ACQUIRED BY
Q2 2019
Notable Education & Training Transactions
ACQUIRED BY
A PORTFOLIO COMPANY OF
ACQUIRED BY
Source: Pitchbook
A PORTFOLIO COMPANY OF A PORTFOLIO COMPANY OF
7
-
1,000
2,000
3,000
4,000
Tem
p Em
ploy
men
t
-30%
-15%
0%
15%
30%
% C
hang
e
0%1%2%3%4%5%6%7%8%9%10%
0
20
40
60
80
100
120
140
160
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
Unem
ployment R
ate
Cons
umer
Con
fiden
ce
Consumer Confidence Unemployment Rate
-10%
-5%
0%
5%
10%
$12.5
$13.5
$14.5
$15.5
$16.5
$17.5
$18.5
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
Annual Percentage G
rowth
Rea
l GD
P
-
100
200
300
400
500
600
700
800
900
1,000
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
-
50
100
150
200
250
300
350
400
450
500
Sep-11 Sep-13 Sep-15 Sep-17 Sep-190.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
YoY
Chan
ge
Key Economic IndicatorsU.S. GDP Growth Consumer Confidence & Unemployment
Non-Farm Payroll (1-Qtr Net Change) Temporary Penetration
U.S. Initial Jobless Claims Consumer Price Index
($ in trillions)
(Payroll in thousands)
(Claims in thousands)
(Employees in thousands)
Sources: S&P Capital IQ, U.S. Bureau of Labor Statistics, St. Louis Federal Reserve (FRED)
Temporary Penetration Rate: 2.01% as of Sept-19
8
Public Trading StatisticsStaffing / Recruiting
Education & Training
Human Resource Services
Source: S&P Capital IQ, public statistics as of 10/18/2019* 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 10/18/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Pearson plc 6.75$ 65.5% 5,254.0$ 6,915.0$ 4,093.0$ 580.0$ 14.2% 1.7x 11.0x 1.8x 9.3x (8.5%) (1.9%)
Grand Canyon Education, Inc. 94.03 70.8% 4,502.2 4,691.6 705.1 274.0 38.9% 6.7x * 17.1x 6.1x * 15.4x (13.2%) (5.2%)
Strategic Education, Inc. 129.84 68.4% 2,786.4 2,485.5 894.7 171.1 19.1% 2.8x 14.3x 2.5x 10.3x 39.4% 27.4%
John Wiley & Sons, Inc. 44.04 77.4% 2,479.8 3,291.0 1,812.7 297.8 16.4% 1.8x 11.1x 1.8x 9.6x 0.9% 2.0%
Adtalem Global Education Inc. 35.85 61.0% 1,974.3 2,085.4 1,239.7 255.0 20.6% 1.7x 8.2x 1.6x 0.0x 7.4% 4.7%
Scholastic Corporation 37.99 79.3% 1,318.6 1,229.8 1,668.1 68.0 4.1% 0.7x 18.1x 0.7x 8.3x 2.5% (1.9%)
K12 Inc. 24.75 66.1% 963.3 704.9 1,015.8 66.4 6.5% 0.7x 10.7x 0.7x 5.4x 10.6% 5.2%
Franklin Covey Co. 35.72 90.9% 499.2 520.1 225.0 14.3 6.4% 2.3x 36.3x * 2.3x 27.8x * 11.5% 3.5%
American Public Education, Inc. 21.72 58.7% 348.6 140.6 293.9 47.9 16.3% 0.5x 3.1x 0.5x 4.1x (0.5%) (3.1%)
GP Strategies Corporation 11.07 64.6% 187.0 333.1 545.3 25.3 4.6% 0.6x 13.2x 0.6x 8.0x 1.2% 3.6%
Lincoln Educational Services Corporation 2.14 64.1% 54.0 117.8 267.0 7.5 2.8% 0.4x 15.7x 0.4x 7.7x 0.5% 2.2%
Zovio Inc 1.58 15.0% 47.8 (20.2) 424.8 (20.6) (4.9%) NM * 1.0x * NM * 2.5x (6.7%) (7.9%)
Mean 65.2% 1,701.3$ 1,874.5$ 1,098.8$ 148.9$ 12.1% 1.3x 12.2x 1.3x 7.3x 3.8% (1.9%)
Median 65.8% 1,141.0$ 967.3$ 799.9$ 67.2$ 10.4% 0.7x 11.1x 0.7x 8.2x 1.0% 2.1%
% 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 10/18/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Automatic Data Processing, Inc. 163.54$ 93.7% 70,927.1$ 71,231.6$ 14,175.2$ 3,489.4$ 24.6% 5.0x * 20.4x * 4.7x 18.1x 8.2% 6.7%
Marsh & McLennan Companies, Inc. 99.05 95.8% 50,150.1 64,578.1 15,636.0 3,784.0 24.2% 4.1x 17.1x 3.9x 15.8x 6.6% 5.9% Revenue X OUTLIERS
Paychex, Inc. 84.25 95.3% 30,155.0 30,511.5 3,901.7 1,603.9 41.1% 7.8x * 19.0x 7.4x * 17.8x 9.9% 9.0%
Willis Towers Watson Public Limited Company 187.77 93.5% 24,221.3 29,144.3 8,591.0 1,911.0 22.2% 3.4x 15.2x 3.3x 12.9x 3.8% 13.2%
Insperity, Inc. 103.11 71.1% 4,246.7 4,098.9 4,088.2 224.7 5.5% 1.0x 18.2x 1.0x 14.8x 16.0% 13.6%
TriNet Group, Inc. 60.25 78.3% 4,213.6 4,392.6 3,661.0 266.0 7.3% 1.2x 16.5x 4.6x 11.6x 7.0% 8.4%
Capita plc 1.71 95.3% 2,825.9 4,179.4 3,757.8 250.4 6.7% 1.1x 16.7x 1.1x 8.1x (7.5%) (7.2%)
Barrett Business Services, Inc. 87.39 95.1% 652.8 581.4 934.3 52.8 5.7% 0.6x 11.0x 0.6x 11.9x 2.2% 5.9%
Mean 89.8% 23,424.1$ 26,089.7$ 6,843.2$ 1,447.8$ 17.2% 1.9x 16.3x 2.7x 13.9x 5.8% 6.9%
Median 94.4% 14,234.0$ 16,768.4$ 3,901.7$ 266.0$ 7.3% 2.3x 16.9x 3.6x 13.8x 6.8% 7.6%
% 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 10/18/2019 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth CAGRAverage
Adecco Group AG 56.16$ 93.4% 9,120.6$ 11,190.4$ 23,691.0$ 1,146.0$ 4.8% 0.4x 8.7x 0.4x 9.1x 0.9% 1.9%
Randstad N.V. 46.73 89.6% 8,564.8 10,599.3 23,782.0 1,088.0 4.6% 0.4x 9.7x 0.5x 8.2x 2.3% 6.3%
ManpowerGroup Inc. 86.65 88.5% 5,185.1 5,731.4 21,060.1 848.3 4.0% 0.3x 6.8x 0.3x 7.5x 4.5% 2.3%
ASGN Incorporated 61.20 85.2% 3,237.5 4,316.9 3,732.1 397.3 10.6% 1.2x 10.9x 1.1x 9.7x 29.5% 16.8%
AMN Healthcare Services, Inc. 59.04 89.7% 2,754.9 3,510.8 2,123.1 237.8 11.2% 1.7x 14.8x 1.6x 12.9x 7.4% 7.1%
Kelly Services, Inc. 23.17 80.1% 917.0 970.2 5,507.2 128.9 2.3% 0.2x 7.3x 0.2x 7.2x 2.6% (0.2%)
Kforce Inc. 37.73 96.4% 869.0 886.8 1,437.0 89.1 6.2% 0.6x 10.0x 0.7x 10.4x 4.4% 2.7%
TrueBlue, Inc. 22.00 85.4% 852.6 894.6 2,471.5 121.7 4.9% 0.4x 7.3x 0.4x 8.1x (0.4%) (4.2%)
Cross Country Healthcare, Inc. 10.58 95.6% 390.1 463.2 799.6 18.4 2.3% 0.6x 25.2x * 0.6x 19.9x (5.6%) 0.6%
Mean 89.3% 3,543.5$ 4,284.8$ 9,400.4$ 452.8$ 5.7% 0.6x 9.4x 0.6x 10.3x 5.1% 1.9%
Median 89.6% 2,754.9$ 3,510.8$ 3,732.1$ 237.8$ 4.8% 0.4x 8.7x 0.4x 9.1x 2.6% 2.3%
% of 52 Week High
Market Cap.Enterprise
Value
9
-
50
100
150
200
250
Staffing / Recruiting Human Resource Services Education & Training S&P 500
-
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
21.0x
Staffing / Recruiting Human Resource Services Education & Training
Stock Market FundamentalsSubsector Index vs. S&P 500
Valuation Trend Data (EV / EBITDA)
Source: S&P Capital IQ, public statistics as of 10/18/2019
3 mos. 12 mos. 3 yrsStaffing / Recruiting (11.3%) (0.5%) 6.4%Human Resource Services 1.9% 24.3% 22.2%Education & Training 7.5% 21.7% 47.5%
3 mos. 12 mos. 3 yrsStaffing / Recruiting 0.5% 8.6% 14.6%Human Resource Services (3.3%) 21.9% 58.7%Education & Training (17.5%) (11.4%) 19.4%S&P500 (0.5%) 8.9% 37.3%
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
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▪ 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
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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
McCarley Brown
AssociateRyan Sugrue
DirectorRobert Womble
Vice President
Paul Marmol
AssociateJake Hirst
Associate
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
