Derek Lewis, a managing director in the Harris Williams Business Services Group, recently spoke with Leslie Sheidler, Senior Director, and Richard Wallace, VP Corporate Development, at Kelly. Here, we share Sheidler’s and Wallace’s views on new opportunities being created in the midst of the COVID-19 crisis, shifting M&A priorities and the challenges of divesting an international business during a global pandemic.
Lewis: When we think about the COVID-19 crisis, there are plenty of concerns and negative impacts. Conversely, can you share some examples of how it’s creating new opportunities?
Wallace: While this is an unprecedented environment, Kelly continues to find ways to provide our customers with value. For example, the Kelly Education business is developing new solutions to help customers navigate the changing education landscape.
We’re identifying new opportunities to provide talent virtually, including virtual tutors and teachers. We are also providing food and nutrition services to public school districts that provide government-funded free lunch programs, IT specialists to support virtual and hybrid learning models, and aides that support temperature-taking. We’re ensuring safety protocols in building and facility custodial staff to help schools meet stringent safety standards. And our teams are hosting Skype meetings with talent to keep them engaged and updated on changes to their local education system.
So, while that business has been impacted by the pandemic, the crisis has also highlighted the difference between staffing companies that provide value in that space and those that are just looking for volume. As a result, we’ve won a significant number of contracts for the coming year. In addition, our Kelly Science, Engineering and Technology business is experiencing some uptick as customers are investing more in research and development related to the pandemic.
Lewis: Can you expand a little on the difference between companies that add value and those that don’t?
Wallace: If you look at a child’s K-12 education, there’s a lot of time spent with substitute teachers. It’s important that they are not just present, but also qualified and engaged. We’ve developed the ability to recruit and retain the specifically credentialed people, and we’ve worked with school districts during the COVID-19 crisis to develop new ways of doing things. School systems appreciate that we’re partnering with them to come up with creative talent solutions.
Sheidler: Our recruitment process is really one of our competitive advantages. We provide professional development and ongoing continued education for our talent, so we know they’re really prepared to provide an uninterrupted learning experience for students.
The other thing that we’ve done is pivot our talent into other, complementary positions, or into virtual tutoring roles, to give them the chance to continue to be employed during COVID-19. And for the districts that are offering virtual learning, we’re providing virtual substitutes, particularly for those full-time teacher vacancies that districts themselves can’t hire. Teachers, whether virtual or in person, will still be absent and will still have professional development days, so there will also be a need for substitute teachers either virtually or in person.
Lewis: Let’s talk about your M&A strategy going forward. What are your priorities?
Wallace: Inorganic growth is itself a priority: Our CEO has mentioned it in several recent earnings calls. M&A will be a catalyst for Kelly’s ongoing transformation into a more specialized talent company. As of July 1, we are structured into five business units: Kelly Education, Kelly Professional & Industrial, Kelly Science, Engineering and Technology, Kelly Outsourcing and Consulting Group, and Kelly International. This transformation supports our specialty businesses, which include IT staffing, engineering and telecom. We completed two telecom deals in recent years, so companies that could function as bolt-ons to that platform would be especially attractive.
The other important area for us is education. We’ve made two educational acquisitions over the past couple of years, and the sector continues to be on our radar. We’re especially interested in adjacencies to the substitute teaching space, where we can leverage our market-leading sales and distribution channel.
Sheidler: Just to expand on those education adjacencies, they typically are focused on the people around the teachers. Our real interest is around special education: paraprofessionals and others working with students with behavioral and developmental needs.
As the largest provider of academic substitute teachers, we lead on our bid engagements. What we don’t have at this point is a significant presence in the special needs segment. It’s a segment with strong growth drivers. There is state- and federally mandated funding for those positions, and it’s an area that is less likely to be hit by budget cuts. Most importantly, there is growing demand in all of our schools across the country.
Lewis: Our last question focuses on your recent divestiture of your staffing business in Brazil, which you completed during the COVID-19 pandemic. What are your key takeaways from that experience?
Wallace: Two major things occur to me. One is the fact that all discussions about the business, its performance and its value become more difficult and complex when you’re operating in an unprecedented situation.
The other piece that made it more challenging was the logistics, and trying to do everything virtually. We all got a bit more familiar with how to do a deal via Zoom, so that helped. But it’s slower and more painful, and making decisions was complicated because we weren’t all together.
I think the key reason we were able to get it done was our existing relationship with the buyer. They’re a very good, trusted partner, and they have a presence in countries where we do not. I’m not sure we would have been able to push this across the table without that strong relationship.
Sheidler: In a normal transaction, there would have been a period where we would have just gone down to Brazil, sat in the war room, worked with the buyer, worked with the attorneys, and we would have been able to get things done faster. Instead, we had to do everything through Zoom. All of that would have been much faster and less painful if we’d been able to meet in person. Overall, having an established, trusting relationship with the buyer was an incredibly important factor in overcoming those challenges.
Derek Lewis is a managing director in the Harris Williams Business Services Group. He and his colleagues specialize in professional services subsectors such as consulting, information technology and workforce solutions; as well as in commercial and industrial services subsectors, including environmental and waste, food service, and facility services.
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Published October 2020