Whitefish, MT / June 3, 2014 / The U.S. staffing industry is expected to grow at a 4.6% compound annual growth rate between now and 2022, according to Staffing Industry Analysts. With a shift away from the use of independent contractors due to misclassification enforcement and underutilization in certain industries, the group expects increasing adoption rates to drive long-term growth in the temporary staffing industry.
While companies like Trueblue Inc. (NYSE: TBI) and ManpowerGroup Inc. (NYSE: MAN) are focused on the blue-collar workforce, Staffing 360 Solutions Inc. (OTC: STAF) has focused its efforts on higher-margin professional staffing in areas like finance & accounting, engineering, IT and cybersecurity. The emerging company’s relatively small size and high growth acquisition strategy could help it unlock significant long-term value for shareholders.
In this article, we’ll take a closer look at Staffing 360 Solutions’ unique roll-up acquisition strategy and its significant potential within this fragmented industry.
Rolling Up a Fragmented Staffing Industry
The staffing industry is highly fragmented, with an estimated 15,000 companies generating less than $20 million in annual revenue in the U.S., while the top ten staffing companies worldwide account for only about a third of total revenue. These dynamics suggest inefficiencies that could be exploited by bringing economies of scale to smaller organizations through accretive acquisitions.
Staffing 360 Solutions has developed a significant pipeline of acquisition targets with the goal of reaching $300 million in annualized revenue. With many public staffing companies trading at around 12x EBITDA, the company targets $20+ million acquisitions in the 4x to 5x EBITDA range, which enables it to benefit from the private-public EBITDA multiple arbitrage and unlock immediate value.
When structuring these acquisitions, management generally seeks to pay equal parts cash, equity, and note/earn-out, while “keeping the DNA intact.” The one-third earn-out incentivizes the existing management team to continue executing and meeting revenue goals. This highly optimized approach to making acquisitions helps ensure the acquired firm continues to execute.
Staffing 360 has made a number of these acquisitions:
- Cyber 360 Solutions – April 26, 2013 – Acquired this Wakefield, Massachusetts-based company that is focused on cybersecurity.
- Control Solutions International – November 4, 2013 – Acquired this Boston-based risk management, consulting, and IT company with clients in over 35 different countries around the world.
- Initio International Holdings – January 3, 2014 – Acquired this UK-based company with operations in the U.S. and U.K., which generated about $80 million in 2013 revenue.
- Poolia UK – February 28, 2014 – Acquired this London-based company as a tuck-in acquisition for its existing operations.
- PeopleSERVE – May 17, 2014 –Acquired this U.S.-based IT staffing company focused on commercial and government customers.
Strong Operational & Financial Performance
Staffing 360 Solutions is unique among many small-cap companies in its ability to execute operationally and deliver financially. These successes are clearly apparent when looking at the company’s financial performance in recent quarters, as well as its public forecast for upcoming quarters. With just $70,000 in revenue for the fiscal quarter ended February 2013, the company projects $32.1 million in revenue for this year’s quarter ending in November.
Executive Chairman Brendan Flood is responsible for setting the vision and strategic direction of Staffing 360’s acquisition plan. Included in Mr. Flood’s significant industry experience are his roles as the former CFO of the Americas for Monster Worldwide, Inc., which generated approximately $1.8 billion of annualized revenue during 2002 and is the parent of Monster.com. He was also the CFO/COO of Hudson Global, Inc. (a NASDAQ listed company).
CEO Matt Briand has kept each subsidiary running smoothly after they were acquired. Mr. Briand has more than 17 years of experience in the staffing industry in recruitment, sales, management, and executive roles. As CEO of Monroe Staffing in 2009, he helped more than double revenue from $34 million to $80 million and received numerous honors in those roles.
In addition, with over 25 years of experience, CFO Jeff R. Mitchell led over 40 acquisitions in the staffing industry between 2005 and 2010 and contributed millions in revenue to many firms. These skills have helped Staffing 360 close the aforementioned acquisitions in a very short period of time and on attractive terms, as well as integrate operations where necessary to achieve economies of scale.
Lastly, Vice Chairman, President and founder of Staffing 360 Solutions, Alfonso J. Cervantes has been instrumental in orchestrating the capital markets side of the business. Over the past 12 months, the company has raised over $15 million in capital, helping fund its high-growth acquisition model.
Upcoming Catalysts & Looking Ahead
Staffing 360 Solutions experienced management brings together extensive staffing and capital markets experience to effectively execute a unique roll-up acquisition strategy within a fragmented staffing industry. With a significant revenue ramp already in progress, the company is well on its way to achieving its stated goal of $300 million in annual revenue within high-margin areas of the staffing industry.
Just as important, the company has publicly stated that it intends to uplist to NASDAQ or NYSE as soon as practicable. The management team expects to achieve this milestone before the end of the year. Needless to say, this is an exciting company that is executing its strategy on all fronts.
Small-cap investors and/or those interested in the staffing industry may want to take a closer look at the company given management’s ability to execute and the business model’s ability to generate long-term value. With approximately $32.1 million in quarterly revenue forecast in November 2014 alone, the firm’s current $60 million market capitalization could quickly appreciate over the coming quarters.
For more information, see the following resources:
- Company Website
- Investor Presentation
- OTC Markets Profile
Disclosure: Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice. Emerging Growth LLC may be compensated for its services in the form of cash-based compensation or equity securities in the companies it writes about, or a combination of the two. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx
Source: Emerging Growth LLC