As temporary staffing market picks up, Adecco goes on a buying spree

Adecco (AHEXY), the world's largest supplier of temporary workers, has offered $1.3 billion in cash to buy MPS Group (MPS), which is based in Jacksonville, Fl. Switzerland-based Adecco wants MPS because it focuses on premium jobs in technology, finance, legal, engineering and health care. MPS is Adecco's fourth takeover target since last month, as it looks for a bigger footprint in the higher-end professional staffing market.

Temporary staffing is just starting to show improvement after eleven consecutive quarters of decline, according to G. Palmer & Associates. "Our 2009 fourth quarter forecast, as expected, shows another anticipated decline in demand for temporary workers -- a trend marking eleven consecutive quarters that we now believe will continue through early 2010. However, the percentage decline is sharply reduced when compared with the rates of decline in the previous quarters earlier this year," Greg Palmer said in a press statement.
In the second quarter of this year, temporary staff employment was down 30.3 percent from the second quarter of 2008. That's a loss of $5.5 billion when compared to 2008 revenues, and revenue is down 32.8 percent from the industry's peak in the third quarter of 2007, according to the American Staffing Association. "While staffing employment dropped nearly a third from a year ago, U.S. staffing firms are still putting some two million people to work every day," says Richard Wahlquist, ASA president and chief executive officer. "We have seen an uptick in staffing employment since early July," he says, "and we expect that staffing firms will see increases in demand as the economy recovers."

Palmer agrees with Wahlquist that signs are looking good for improvement in the temporary job market. He said in a press statement, "The narrowing of declines in temp help is positive, since temp help, which historically is the first job category to improve at the beginning of an expansion, is beginning to see the declines narrow."

Adecco is banking on these predictions being right. It's taking advantage of the downturn by buying up key temporary staffing targets that will expand its footprint in the U.S., Canada and the U.K. It offered MPS shareholders a 24 percent premium over MPS' last closing price to seal the deal. MPS' board of directors unanimously recommended Adecco's offer; the purchase is expected to be completed in the first quarter of 2010.

Adecco is funding the transaction with cash reserves and a planned 900 million-Swiss franc ($890.5 million) mandatory convertible bond. S&P placed Adecco's BBB long-term corporate rating on CreditWatch with negative implications after the purchase. S&P said it would likely lower Adecco's credit rating to BBB-, according to Bloomberg.

If Adecco and the specialists are right and the worst is over for the temporary staffing marketplace, then Adecco made a brilliant move increasing its footprint. If they are wrong, Adecco could be taking on more debt than it will be able to manage.

Let's all hope Adecco's bets are right and we start seeing a rebound in the temporary staffing market. Employers tend to hire temps at the beginning of a rebound as they test the waters, making temporary employment growth a telltale sign of the start of an economic recovery.

Lita Epstein has written more than 25 books, including Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together.
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