Capstone Partners. Staffing & Talent Management. Market Intelligence for Industry Players Q M&A Update Report. Investment Banking Advisors

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1 M&A Update Report Market Intelligence for Industry Players Q Capstone Partners Investment Banking Advisors BOSTON CHICAGO LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY

2 M&A Update Report MERGER AND ACQUISITION ACTIVITY CAPSTONE PARTNERS LLC John Ferrara President, Managing Partner (617) Kevin Jolley Managing Director (617) Ted Polk Managing Director (312) Eric Williams Managing Director (215) The staffing industry deal environment remains vibrant. Capstone s research indicates that 54 transactions were completed in the industry through August. On a pro forma basis, together with the host of transactions we see moving to closure during Q4 this year, 2012 should mark the third consecutive year of solid M&A performance in the sector. Both corporate and private equity buyers are actively pursuing both platform and bolt on acquisitions, particularly focused on growing mid sized firms that have successfully differentiated themselves in the market. The larger corporate/global players have been active as both buyers and sellers. In fact, now that many of the larger firms have been acquired or involved in mergers, we expect the consolidation of middle market staffing firmstoaccelerate. Withthetop10USstaffing firms holding only 28% market share, the industry remains very fragmented Staffing Industry M&A Transaction Volume YTD Sources: Capital IQ, Capstone Partners LLC research, Staffing Industry Analysts YTD 2012 data as of August 31, In the post recession recovery, the US economy has regained only a portion of its lost workforce. Fear, uncertainty and tepid economic growth are keeping employers from additional hiring, especially of full time permanent employees. While these uncertainties represent risk for staffing firms, there is also some benefit as employers turn to temporary, contract and other staffing services as a way to maintain workforce flexibility in an uneven recovery. When the economy begins to exhibit consistent growth and employment numbers rise more decisively, the staffing industry will profit and additional acquisitions of staffing companies are expected to follow. In fact, we evidenced a strong interest in mergers and acquisitions at the SIA summit earlier this year, with many staffing companies discussing M&A as a sign of confidence in long term staffing demand trends. We are also witnessing activity across all segments of staffing, including temporary staffing, recruiting, executive search and PEOs as well as most specialties IT, healthcare, professional, commercial and industrial. However, there are differences among these segments in terms of transaction multiples. 1

3 MARKET OBSERVATIONS: VALUE DRIVERS Over the past six to nine months, we have been approached by an increasing number of private business owners in the staffing industry that are beginning to plan for an M&A exit. On a demographic level, the aged population of business owners that have skipped an entire exit cycle is certainly having an impact on the increase in deal supply. However, we also consistently hear that owners/entrepreneurs are feeling increased competition from larger corporates, downward pressure on market pricing and increased regulatory risk. With those dynamics in place, owners presently appear to be more keenly focused on tapping the opportunistic window to either pursue a full exit from the business or merely take some chips off the table to diversify their concentrated wealth management risk. As part of this dialogue with industry entrepreneurs, Capstone is actively involved as investment banking advisor, in some cases working with companies to prepare them for the market. In addition, we work with companies as an advisor to the board, working with the shareholders to help them assess their relative market position, strengths and weaknesses in an effort to ultimately help maximize shareholder value. The leading usual suspects that we see driving current market value premiums include: (1) attractive growth; (2) value added solutions and hence healthy operating margins; (3) a unique set of services; (4) a strong local or regional market position; and (5) a diversified, loyal base of attractive customers. That said, our balanced scorecard for the staffing industry has evolved, depending upon the individual segment, a sample of which is provided below: Multiple locations and attractive geographic markets Industry specialization for improved sales and fulfilment effectiveness Job, position or skillset focus for sales and fulfilment efficiencies Strong management team committed to growth Impressive client portfolio; no one client > 10% of sales Brand strength and scale revenues of $25mm+ OPTIMAL VALUE Track record of growth and profitability, including recession performance Advanced recruiting and back office technologies & processes, including social media Healthy operating margins/value added model Proven staff, low employee turnover and normative compensation plans HR services and valueadded solutions like strategic workforce planning Quality candidates, excellent fill ratio, & training If you are considering exploring the M&A or liquidity markets in the near future and would like to better understand your market proposition and relative valuation, please feel free to reach out to one of Capstone s staffing industry investment bankers. 2

4 NOTABLE TRANSACTIONS With several transactions announced over the summer months of June, July and August, there a fair amount of recent M&A activity. Notable transactions are highlighted below, with a more inclusive summary of recent deals on the following page: Korn/Ferry International Inc. acquires Global Novations LLC (September 2012) Korn/Ferry International Inc. (NYSE: KFY) acquired Boston based Global Novations, a provider of diversity, inclusion and leadership development solutions. The transaction is notable in that it underlines the attractiveness of diversity staffing services. IBM announces plans to acquire Kenexa (August 2012) Kenexa Corp. is to be IBM for $46 per share in a transaction valued at $1.3 billion. Kenexa is a consulting, content and technology company in the talent acquisition and management software and services space. Its operations include recruitment process outsourcing services, applicant tracking software and other employee management software. With Kenexa s team and new offerings, IBM can dramatically expand its presence in the global HR and talent management markets. IBM stated that the Kenexa acquisition combines cloud based technology and consulting services that integrates both people and processes. Kenexa s annual revenue for 2011, including RPO and other operations, was $282.9 million. The transaction is expected to close in the fourth quarter. IBM has acquired other firms in the talent space; late last year, it acquired vendor management system provider Emptoris Inc. The Gores Group LLC acquires Glotel, Inc. and Idea Integration Corp. (July 2012) The Gores Group, a private equity firm, acquired the Glotel North America and Idea Integration Corp. operations from Adecco North America. Terms of the transactions were not announced. Glotel is a mobile communications network services and staffing solutions provider. It was formerly part of Spring Group plc, which was Adecco in Idea Integration provides IT solutions in digital strategy, marketing and design and other areas, as well as managed services. Adecco acquired the firm in 2009 when it bought MPS Group Inc. EmployBridge acquires Allines, Inc. (July 2012) Allines provides industrial, office/clerical and other staffing. EmployBridge was attracted to the deal by the opportunity to expand its presence in the growing Mid Atlantic region and to add quality leadership and branch staff to its team. On Assignment Inc. acquires Apex Systems, Inc. (May 2012) Privately held Apex Systems, Inc. is one of the largest and fastest growing suppliers of IT staffing. On Assignment paid $686 million to acquire all of Apex and retire its debt. The price included $383 million in cash and newly issued stock valued at $217 million. The Apex deal comes after several years of discussions between the two parties, and the determination that Apex and On Assignment shared similar cultures but did not competeforthesamebusiness. Thedealisexpectedtogeneratestrategictop line revenue growth for On Assignment. 3

5 SELECTED STAFFING M&A TRANSACTIONS Date Target Acquirer Target Business Description Sept 12 Global Novations LLC Korn/Ferry International Inc. (NYSE: KFY) Aug 12 Kenexa Corp. IBM (NYSE: IBM) Aug 12 PeopleShare, Inc. Cross X Platform, LLC Aug 12 Dividend Staffing, Inc. MyStaf Jul 12 Allines, Inc. EmployBridge, Inc. Jul 12 Jul 12 Jun 12 Glotel, Inc. and Idea Integration Corp. AdamsGrayson Corporation Cambridge Staffing, Inc. The Gores Group LLC Huron Legal (UK) Limited QPS Employment Group, Inc. Jun 12 BANKtemps Workway, Inc. Jun 12 Productive Resources, LLC Lionbridge Technologies Inc. (NasdaqGM:LIOX) The Javers Group, Inc. Univest Insurance Inc. TRIOS Search Partners, Inc. Temporary Professionals, Inc. Bench International Search, Inc. Provides diversity, inclusion and leadership development solutions. A consulting, content and technology company in the talent acquisition and management software and services space. Provides staffing services specializing in temp and contract staffing, temp to hire, direct hire and flexible staffing. Places professional, technical and executive level candidates as direct hire, temp, temp to hire and contract to hire. Provides temp, temp to perm and permanent staffing services in a wide variety of jobs. Provides project and staffing services to the mobile communications industry. Provides managed solutions/staffing for accounting and finance, E discovery and legal positions. Recruits contractors in the areas of medical, engineering, sales, marketing, accounting, finance and IT. Provides staffing services to the financial services industry as temp, temp to hire, direct hire and executive placement. Provides outsourced engineering and drafting solutions, temporary contract employees and permanent staffing. Provides HR management and benefits outsourcing services to financial services, healthcare, technology and manufacturing. Offers executive search and human resources consulting in the biotechnology, pharmaceutical and healthcare industries. Enterprise Value (mm) EV / LTM Revenue EBITDA $1, x 49.0x $31.5 $ x 10.0x $5.0 Employment Control, Inc. Provides temporary staffing services. Apex Systems, Inc. On Assignment Inc. (NYSE:ASGN) Provides IT staffing services for contract, contract to hire and direct placements. $ x 14.3x Mar 12 Feb 12 Feb 12 Jan 12 The Eastridge Group (Houston Operations) 6FigureJobs.com, Inc. SOS Staffing Services, Inc. (Kansas City Operations) Staffing Specialists, Inc. Accord Human Resources, Inc. Atterro, Inc. Callidus Software Inc. (NasdaqGM:CALD) QPS Employment Group, Inc. Doherty Staffing Solutions, Inc. TriNet Group, Inc. Careers in the Fire Service Praetorian Group, Inc. Metro Group, Inc. Transport Labor Contract/Leasing, Inc. Kforce Clinical Research Inc. Employment Control, Inc. USA Staffing, Inc. Computer Methods Corporation The Staffing Resource Group, Inc. High Street Capital; Cohesive Capital Partners inventiv Health, Inc. Claritas Capital; Harbert Mezzanine Partners QPS Employment Group, Inc. Premier Logic, LLC Jan 12 Janou Pakter Inc. JBCHoldings NY LLC LTM = last twelve months; EV = enterprise value Source: Capstone Partners LLC research, Capital IQ, company public filings and press releases Provides customized staffing solutions for the manufacturing, assembly and distribution industries. An executive career management company, offers online job search resources and content for job seekers and recruiters. $1.1 Offers staffing services. Operates as a staffing and recruiting company that offers clerical and light industrial staffing solutions. A professional employer organization, provides outsourced human resource management solutions. Provides firefighter employment listings and hiring information services. Provides IT recruitment services including executive search, contract, temporary and direct placement. A professional employer organization, provides human resources services to transportation clients. Provides outsourcing and contract staffing, as well as permanent placement services. Provides commercial temp staffing services in manufacturing, distribution/logistics, medical and online sales support. Provides staffing services on a temporary, long term assignment and contract to hire basis. Provides consulting, contract staffing, contract to hire and permanent placement services. Provides executive search and creative positions recruitment services. $ x 4

6 PUBLIC COMPANY TRADING & OPERATING DATA Price % 52 Wk Market Enterprise LTM 1 Yr Rev EV / LTM Company 8/31/12 High Cap Value Revenue EBITDA Margin Growth Revenue EBITDA AMN Healthcare Services Inc. (NYSE:AHS) $ % $343.0 $545.6 $ $ % 12.23% 0.6x 9.0x CDI Corp. (NYSE:CDI) $ % , % 7.74% 0.3x 8.5x Cross Country Healthcare, Inc. (NasdaqGS:CCRN) $ % % 6.57% 0.3x 10.3x Heidrick & Struggles International Inc. (NasdaqGS:HSII) $ % % (3.87%) 0.3x 2.6x Hudson Global, Inc. (NasdaqGS:HSON) $ % % (1.37%) 0.1x 7.7x Kelly Services, Inc. (NasdaqGS:KELY.A) $ % , % 3.20% 0.1x 4.9x Kforce Inc. (NasdaqGS:KFRC) $ % , % 16.62% 0.4x 15.1x Korn/Ferry International (NYSE:KFY) $ % % (0.46%) 0.5x 3.7x ManpowerGroup (NYSE:MAN) $ % 2, , , % 3.10% 0.2x 5.1x Monster Worldwide, Inc. (NYSE:MWW) $ % % (2.25%) 0.8x 6.1x On Assignment Inc. (NYSE:ASGN) $ % , % 51.72% 1.7x 17.1x Resources Connection Inc. (NasdaqGS:RECN) $ % % 4.81% 0.6x 7.1x Robert Half International Inc. (NYSE:RHI) $ % 3, , , % 14.75% 0.9x 9.5x TrueBlue, Inc. (NYSE:TBI) $ % , % 13.76% 0.3x 6.7x Volt Information Sciences Inc. (OTCPK:VISI) $ % NA 2, % (8.12%) NA NA EV = enterprise value; LTM = last twelve months $ is millions, except per share data Mean 6.1% 7.90% 0.5x 8.1x Median 5.1% 4.81% 0.4x 7.4x Last Twelve Month Margin Performance 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 28.1% 52.1% 37.6% 38.3% 39.9% 30.6% 31.3% 32.3% 32.6% 26.7% 20.6% 16.4% 16.7% 26.3% 6.7% 3.4% 2.9% 9.7% 11.5% 13.8% 9.9% 1.8% 1.8% 2.5% 2.9% 8.4% 9.1% 5.1% 6.2% 1.7% Last Twelve Month 1 Year Revenue Growth Gross Margin % EBITDA Margin % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 12.2% 7.7% 6.6% -3.9% -1.4% 3.2% 16.6% -0.5% 3.1% -2.3% 51.7% 4.8% 14.8% 13.8% -8.1% Source: Capital IQ as of August 31,

7 CAPSTONE PARTNERS: RECENT HUMAN CAPITAL TRANSACTION Capstone s professionals have completed several transactions in the human capital and consulting sector, including business sales, debt financing, and the provision of valuation advisory services, as well as acquisition services. Recently, Capstone advised CRG Partners on its acquisition by Deloitte in May Deloitte acquired substantially all of the assets of CRG Partners to expand its financial restructuring, turnaround management and bankruptcy reorganization capabilities. Prior to the acquisition, CRG Partners was a leading provider of operational and financial restructuring services, specializing in creating value for the stakeholders of underperforming companies. CAPSTONE PARTNERS: STAFFING INDUSTRY CREDENTIALS has acquired debt financing CERTIFIED IT & ITRICITY FREEDOM DATA NORTHERN HEALTHCARE CAPITAL valuation & financial advisory valuation & financial advisory ARIES GROUP INC. MORRIS, NICHOLS, ARSHT & TUNNELL LLP camdenvale 6

8 THE STAFFING INDUSTRY TEAM John Ferrara, President and Managing Partner (617) John Ferrara, the founder and principal shareholder of Capstone, serves as the firm's President and Managing Partner. Over his extensive career in investment banking, venture capital and management consulting, John has executed over 100 related engagements representing in excess of $6 billion in value. John was formerly a Regional Managing Partner with Andersen Corporate Finance, where he founded the Boston office and held various national and global leadership positions. He started his career in Lehman's Brothers' M&A group in New York, London and Riyadh, later becoming a founding member of Rodman & Renshaw's M&A practice in New York. He earned an MBA in Entrepreneurial Studies from The Anderson School at UCLA and the London School of Economics, during which time he founded and operated a corporate finance advisory boutique, JG Atlas Advisors, and its related investment arm, Atlantis Capital Partners. He holds dual BA degrees from Wesleyan University and is qualified as a General Securities Principal. Kevin Jolley, Managing Director kjolley@capstonellc.com (617) Kevin has over 18 years of investment banking, syndicated bank loan and corporate finance experience. He leads Capstone's Consumer & Industrial Products practice and is a member of the Board of Directors. His transaction experience includes managing complex engagements for clients in a variety of industries including consumer products, industrial products, medical devices, biotechnology, business services, software, and distribution. Prior to joining Capstone, Kevin served as a Vice President in the Investment Banking Group at Adams Harkness. Kevin also served as an Associate in the Debt Capital Markets Group of FleetBoston Robertson Stephens, Inc. Before Fleet, Kevin was at Textron Inc. where he worked in the Strategic Planning, Internal Audit and Mergers & Acquisitions departments. He also has four years of finance experience with Oracle Corporation. Kevin received his B.A. from Brown University and his M.B.A. from the University of Pennsylvania s Wharton School. He is registered with FINRA and is qualified as a General Securities Representative. Ted Polk, Managing Director tpolk@capstonellc.com (312) Ted is Managing Director and Head of the Central Region at Capstone, based out of Chicago. Prior to Capstone, Ted ran the corporate finance practice in the Central region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. He has over 20 years of experience, having completed strategic sale and recapitalization transactions across a variety of industries. Ted is a frequent public speaker on the topic of business exits and recapitalizations of privately owned businesses. In 2008, Ted was recognized by The M&A Advisor for the Cross Border Middle Market Deal of the Year. In 2009, another of his transactions was recognized as the Middle Market M&A Financing Deal of the Year and in 2011 he was recognized for lead managing the Middle Market Deal of the Year. Previously, Mr. Polk worked at Valuemetrics, Inc. and in the Corporate Banking Group at The Bank of New York. Ted received his BSBA degree from Georgetown University and MBA from the University of Chicago. He is a Chartered Financial Analyst (CFA), a Series 7 and 63 Registered Securities Representative, and a Series 24 Registered Securities Principal. Eric Williams, Managing Director ewilliams@capstonellc.com (215) Eric serves as Managing Director and Head of the Eastern Region for Capstone, based out of Philadelphia. Prior to Capstone, Eric was responsible for managing the Eastern region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. Eric has 20 years of experience managing strategic sale assignments and leveraged recapitalizations for owners of privately held companies. He has successfully completed over 100 transactions in a wide range of industries including health care services, medical technology outsourcing, defense, pharmaceutical services, and education and training. He has also executed complex cross border transactions with foreign buyers based in London, Germany, Sweden, and Switzerland and has structured deals with leading private equity groups and strategic corporate buyers. Previously, Mr. Williams worked as a senior executive with Newport Securities Corporation. He graduated cum laude from the University of California and is a Series 7 and 63 Registered Securities Representative as well as a Series 24 Registered Securities Principal. 7

9 ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a leading national investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including one in staffing & talent management. The firm also possesses merchant banking capabilities to actively co invest in transactions. Additional information about Capstone Partners can be found at LEADERSHIP TEAM BOSTON CHICAGO PHILADELPHIA John Ferrara Ted Polk Eric Williams President, Managing Partner Managing Director Managing Director (617) (312) (215) jferrara@capstonellc.com tpolk@capstonellc.com ewilliams@capstonellc.com Kevin Jolley LOS ANGELES SAN DIEGO Managing Director David Bench David Michaels (617) Managing Director Managing Director kjolley@capstonellc.com (949) (858) dbench@capstonellc.com dmichaels@capstonellc.com Capstone Partners Investment Banking Advisors World Class Wall Street Expertise. Built for the Middle Market Capstone Partners LLC. All rights reserved.