Review Human Capital Services Report SPRING 2012 Human Capital Services Merger & Acquisition Activity Human capital services ( HCS ) merger and acquisition activity increased 2% in the first quarter of 2012, when annualized and compared to all of 2011. Human resource outsourcing ( HRO ) transaction activity declined 17%, compared to an increase of 27% in staffing. Staffing activity was led by material increases in healthcare and IT staffing transactions (see chart below). By way of comparison, in the two previous years, HRO transaction activity grew much faster than staffing transaction activity. While it is still early in the year, this trend bodes well for staffing M&A activity in 2012. Of the larger transactions completed during the quarter, only one involved a private equity firm, as a seller, rather than a buyer. However, private equity acquisitions in HCS have increased to 36% of the transactions announced compared to an average of 28% of the 2010 and 2011 transactions (see chart below). Most of the private equity activity continues to occur in HRO, with recruiting solutions being the most active segment. 180 160 Transactions by Year Type of Buyer 140 120 100 78 87 72 26% 31% 36% 80 60 40 20 0 27 28 18 28 19 28 9 9 16 28 20 12 2010 2011 Q1'2012 Annl'z 74% 69% 64% 2010 2011 Q1'12 Commercial IT Services Medical Other HRO Strategic Private Equity Page 1
Notable Announcements in Q1 2012 Apex Systems, Inc. - On Assignment, Inc. (NASDAQ: ASGN) agreed to pay $600 million for Apex Systems, Inc., one of the largest and fastest growing providers of IT staffing and workforce solutions. Founded in 1995, Apex has 49 locations in the U.S. and generated over $700 million of revenues in 2011. The purchase price includes $383 million in cash and $217 million in stock. Apex s founders will own about 29% of On Assignment after the closing. On Assignment reported revenues of approximately $600 million in 2011 from its IT and healthcare staffing businesses. Kforce Clinical Research Inc. - Privately-held inventiv Health, Inc. completed the purchase of Kforce, Inc. s (NASDAQ: KFRC) $106 million revenue clinical research business ( CRB ) for $50 million in cash. CRB provides clinical trial resourcing solutions and offers outsourcing, contract staffing, and permanent placement services. The range of clinical services includes site management and monitoring, clinical programming and data management, clinical project and program management, biostatistical analysis and reporting, pharmacovigilance, medical writing, and regulatory affairs services. Kforce previously announced that CRB s largest customer, providing half of its revenues in 2011, was transferring CRB s business to other vendors through 2012. Kforce is a professional staffing and services firm and reported revenues of $1.1 billion in 2011. Prompt Holdings - Cerberus Capital Management sold the Japanese operations of Advantage Resourcing to management and the London-based private equity firm CVC Capital Partners (the unit was renamed Prompt Holdings). While financial terms were not disclosed, Advantage generated global revenues of $2.2 billion in 2010 (the U.S. and European divisions of Advantage Resourcing were sold to Japan-based Recruit Staffing in January 2012 for $410 million). Taleo Corp - Oracle (NASDAQ: ORCL) announced its $1.9 billion purchase of Taleo Corp. (NASDAQ: TLEO), a company that helps businesses hire and manage their employees. Taleo, which has about 1,400 employees, has more than 5,000 customers, including nearly half of the Fortune 100. Through its software, people apply for jobs and companies manage the careers of their employees. Based in Dublin, California, Taleo lost $14 million on revenues of $309 million last year. Page 2
Public Market Valuation Trends As shown in the chart below, for the first quarter of 2012, in the public equity market, HCM sectors posted gains of between 12% and 16%, as confidence in the economy increased. However, most sectors were flat for the twelve months ending March 31, 2012, and healthcare staffing performed far worse than other staffing and HRO sectors, falling 31%. Outlook for Staffing & HRO Staffing Staffing Industry Analysts has raised its projections for the staffing industry, which is now expected to grow 10% in 2012 (up from 7% previously projected). This growth is attributable to the fact that employers are expected to continue to be cautious in their full time hiring and rely on contingent staffing to bolster their workforces. Page 3
Commercial staffing is expected to grow by 9%, and Professional staffing is expected to grow by 11% in 2012 (this growth is led by IT (+14%) and Clinical/Scientific (+10%) staffing). Place and Search should grow by 13% and Healthcare staffing is expected to grow 9% in 2012 (which would be the fastest growth rate since 2002). The PEO industry is expected to grow by 8% in 2012, down from 10% growth realized in 2011. HRO KPMG s 1Q12 Sourcing Advisory Pulse Survey indicates that users continue to diversify their global business service models with an increased emphasis on domestic and offshore captive shared services. While outsourcing remains a core component of their business models, shared services is growing at a faster rate. Additionally, the use of cloud computing continues to grow, although most users need to address data security, privacy and risk requirements. Service providers have become more optimistic on near and medium-term outsourcing demand and on overall services spending. Summary The improving HCM equity valuations bode well for U.S. M&A activity. We expect a continuation of improving activity at the lower end of the range as buyers gain more comfort with the economic outlook and sellers act on the impending tax changes due in 2013. On average, the increasing revenues of HCM companies will produce less earnings than was experienced in previous years. Many businesses have realized most of the benefits that scale can produce. Thus, future growth will cost more to support and will add less incremental income on which valuations are based. Page 4
Crutchfield Capital Corporation is a private investment banking firm that provides corporate finance services to middle market companies. Services provided include arranging mergers, acquisitions and divestitures; raising private debt and equity capital; valuing companies and corporate securities; and advising on a variety of financial and business matters. Since our founding in 1991, Crutchfield Capital has successfully closed more than $1 billion in aggregate transaction value. Our clients have been located in over 20 states and have ranged from small private businesses to Fortune 500 public companies. While the firm serves a number of industries, we have significant experience in human capital services, including staffing and HR outsourcing. For additional information, please contact: Crutchfield Capital Information Rick Wilson Managing Director Crutchfield Capital Corporation rgw@crutchfieldcapital.com 713.961.0496 CELEBRATING TWENTY-ONE YEARS 1991 2012 Page 5
Appendix Q1'2012 2011 2010 Deals Strategic Financial Total % Strategic Financial Total % Strategic Financial Total % Staffing Acct/Fin 0 1 1 5% 2 0 2 3% 5 2 7 8% Commercial 1 2 3 14% 16 4 20 30% 23 5 28 30% IT Services 3 1 4 19% 7 2 9 14% 16 3 19 21% Medical 7 0 7 33% 9 0 9 14% 16 2 18 20% Search 2 0 2 10% 9 2 11 17% 9 0 9 10% Other Staffing 3 1 4 19% 11 4 15 23% 7 4 11 12% Staffing Subtotal 16 5 21 100% 54 12 66 100% 76 16 92 100% 76% 24% 100% 82% 18% 100% 83% 17% 100% HRO PEO 1 1 2 11% 1 2 3 3% 5 2 7 9% HRO-Benefits Admin 4 1 5 28% 18 6 24 28% 16 2 18 23% HRO-Payroll 2 0 2 11% 5 4 9 10% 2 1 3 4% HRO-Recruiting 1 5 6 33% 9 20 29 33% 11 12 23 29% HRO-Screening 0 1 1 6% 2 0 2 2% 1 3 4 5% HRO-Other 1 1 2 11% 17 3 20 23% 14 9 23 29% HRO Subtotal 9 9 18 100% 52 35 87 100% 49 29 78 100% 50% 50% 100% 60% 40% 100% 63% 37% 100% Total 25 14 39 106 47 153 125 45 170 64% 36% 100% 69% 31% 100% 74% 26% 100% Source: Staffing Industry Analysts, Capital IQ and Crutchfield Capital Research Page 6