What We’re Doing

NAPEO Conference Takeaways

Professional Employer Organizations (PEOs) offer human resource solutions for small and mid-sized businesses (SMBs) including payroll processing, employee benefits, insurance, workers’ compensation, and other employee and risk management services. PEOs and SMB clients engage in “employee leasing,” in which the PEO serves as the administrative employer and the SMB serves as the worksite employer.

Last year over 30 million SMBs operated in the U.S. and generated 1.9 million net new jobs.1 In an increasingly tight labor market, SMBs seek cost effective, yet competitive employee benefits and retirement packages.1 Due to their scale, PEOs can often offer better pricing for employee benefits and other services than a SMB could achieve on its own. As a result, PEOs have experienced strong growth in demand for services. According to a recent study, there are over 900 PEOs in the U.S., which reported $175 million of aggregate revenue. Today, 3.7 million professionals, also known as worksite employees (WSEs), participate in “employee leasing” – more than double the number of WSEs in 2008.2

Buoyed by a strong U.S. labor economy and growing acceptance of “employee leasing,” the PEO industry has received increased interest from investors. Notably, Morgan Stanley Capital Partners invested in CoAdvantage, a Florida-based PEO, in October 2015. Kelso & Company joined Stone Point Capital Partners in their investment in Oasis Outsourcing, a Florida-based PEO, in July 2017. In November 2017, Friedman, Fleischer & Lowe invested in a Hawaii-based PEO, ProService Hawaii, and in January 2018, GPB Capital invested in MatrixOneSource, a Florida-based PEO. The industry remains highly fragmented, with labor laws that regulate PEOs varying by state. As such, the industry has also observed an increased presence of consolidators seeking to create players of regional and national scale.

This past September, members of the Business Services group attended the National Association of Professional Employer Organizations (NAPEO) Annual Conference & Marketplace in Phoenix, AZ. The conference gathered PEOs and industry service providers. To learn more about the PEO industry, please contact Derek Lewis.

Serial Success Stories

Value Creation Across Multiple Private Equity Owners

A few companies consistently set themselves apart from the rest, achieving what appear to be outsized growth and returns that attract strong attention from multiple generations of private equity investors. Harris Williams has worked with several such companies over the years. Most recently, the firm’s experience with two clients has solidified our view of the specific value drivers behind their remarkable results.

Read more about it here.

Recent Harris Williams Professional Services Transactions

The Business Services group has served as a trusted advisor to numerous professional services companies and continues to focus on this growing and innovative industry.

Select professional services transactions include:

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What We’ve Been Reading

Sykes Enterprises to Acquire Symphony Ventures for $69M

"Sykes Enterprises, Incorporated (NASDAQ: SYKE), a leading provider of multichannel demand generation and global customer engagement services, announced that it has entered into a definitive agreement to acquire Symphony Ventures Limited, the leading global pure-play and best-of-breed provider of RPA services. The acquisition position Sykes as an early mover and clear leader amongst its peers in its ability to support clients’ RPA and IA initiatives globally."

Read more about it here.

Professional Employer Organizations Employ 3.7M

"Employment growth in the professional employer organization industry is 14 times higher than the growth rate in the US economy overall, according to a new study released by the National Association of Professional Employer Organizations at its annual conference. “The outlook for continued growth and vibrancy is extremely bright for PEOs given the significant value proposition to small and mid-size businesses,” says NAPEO President and CEO Pat Cleary."

Read more about it here.

Recent Data Sheds Light on H-1B Visa Trends

"US Citizenship and Immigration Services made news in September announcing it will be extending and expanding its suspension of premium processing for FY19 H-1B visa petitions. The freeze will expand to include additional H-1B petitions beginning Sept. 11 and is expected to extend through Feb. 19, 2019.  The development presents challenges for some IT staffing firms looking to leverage access to foreign workers in a supply-constrained domestic environment. In addition to the premium processing suspension, the current administration’s "Buy American, Hire American" executive order has resulted in an increasingly challenging environment as it relates to H-1B visas in staffing."

Read more about it here.

What We’ve Been Hearing

Excerpts from Recent Earnings Calls

untitled_271.png“During Q2, we announced the acquisition of TMP, a leading provider of RPO services, resourcing and recruitment marketing services in the United Kingdom. While relatively small in size, the strategic importance of this acquisition is worth noting. Not only does it expand our highest-margin business, it also opens the door for us in the U.K. and the European region, improving our ability to compete for multi-continent RPO engagements.” – Steven Cooper, CEO & Director, TrueBlue, Inc.

untitled_272.png“First, the strategic review. As we announced in September, the Board of Directors expanded the scope of our previously announced strategic review of the company's Buy segment to include a broad review of strategic alternatives for the entire company and its businesses. As we stated, the strategic review could result in a broad range of alternatives, including continuing to operate as a public independent company, a separation of either Nielsen's Watch or Buy segments or a sale of the entire company.” – James Attwood, Executive Chairman, Nielsen Holdings plc

untitled_273.png“Our acquisition initiative, which has enabled to grow the company substantially in the past, is now in full swing with the completion of a significant acquisition of a pharmaceutical training company in the second quarter of 2018. Our acquisition of the SuccessFactors business of Hula Partners earlier this year, and our previously announced ventures with ManchesterCF and Nexus Global holds well for the company. These acquisitions and ventures provide the company with potential for both incremental high-margin business and passive income as well. These transactions and the enhanced management team put GP Strategies in a good long-term position and make us extremely optimistic about the company's future.” – Scott Greenberg, CEO & Director, GP Strategies Corporation

Equity Trading Overview

Key Trading Statistics3,4

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Public Company Sector Performance1,2

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Economic Trends

A Snapshot of Key Economic Indicators

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M&A Market Trends

Select Recent M&A Transactions4

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Business Services M&A Volume (By Year)4*

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Public Comparables

Public Company Performance3,4

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1. U.S. Small Business Administration

2. McBassi & Company

3. Thomson Reuters

4. FactSet

5. U.S. Bureau of Economic Analysis

6. The Conference Board

7. U.S. Bureau of Labor Statistics

8. U.S. Department of Labor

 

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