CDI's Hostile Bid for RCM Technologies: Investors Seem to Like It


Technology outsourcing and staffing company CDI Corp. (CDI) really wants to own rival RCM Technologies (RCMT). On May 21, the company sent a letter to RCM's board to propose a buyout, but there was no response.

Now, CDI is making a hostile bid of $5.20 per share. RCM's board has rejected the offer.

Favoring a Deal

RCM shares are up almost 40% to $4.80 in midday trading today on the announcement. It looks like the company's days of independence will come to an end.

As for CDI, its shares are down only 4% or so, which is a sign that investors think the proposed hostile deal looks reasonable.

Founded in 1971, RCM is a single-source provider of engineering and IT outsourcing support. To bulk up, the company purchased Project Solutions Group about a year ago.

Yet, RCM is still relatively small, especially in its industry. In the most recent quarter, revenues came to $49.1 million, which was an increase from $46.7 million in the same period a year ago. Net income from continuing operations was $2.4 million.

Pairing Makes Sense

RCM has been getting traction from its engineering segment, and there was stabilization in the information technology and commercial segments. It looks like the company is in the early stages of a comeback.

Despite this, RCM will find it difficult to scale its business. So a deal with a larger player like CDI would definitely make sense. After all, the company generates roughly $900 million in annual revenues and has a diverse portfolio of business segments and customers.

CDI also has $76.3 million in the bank and is likely to see cost and revenue synergies with a deal.

Quick Deal Is Key

But will a hostile deal work? There are big risks. In a business that relies on skilled employees, it's possible to lose key people. Or there could be a fall-off in productivity because of the uncertainty. This is why a quick deal is important.

So it may mean that CDI will ultimately up its bid -- and the company has the balance sheet and access to capital to do this fairly easily.

Originally published