1) How has Adecco managed to outperform its rivals in the staffing industry? What is the rationale for acquiring Olsten?
Adecco has been able to outperform rivals due to its consistent three-pronged strategy to become the “employer of choice.” The three goals of this strategy were:
Achieve rapid growth both organically and through acquisitions. Adecco’s historical data showed a strong relationship between growth and returns, and thus was able to achieve high total return to shareholders by pursuing growth.
Obtain “number one or two in market share in the 11 biggest national markets, and… attain a 20% share of each market.” Adecco’s data showed a very strong relationship between profitability and market share; namely, EBIT margins were positively correlated with market share.
Emphasize specialty, high-value segments. Although specialized staffing was only 12% of sales, Adecco had acquired multiple well-established names in these areas.
Adecco’s primary goal was to increase its market share because of the relationship between market share and margins. Olsten was an ideal acquisition candidate because it would allow Adecco to obtain the number one seat in the US, increasing its overall market share from 6% currently to 10%. Olsten’s strong market presence in the East largely complimented markets where Adecco was less prominent, and Olsten offered a presence in the specialty IT business that would increase Adecco’s market share.
2) Based on Adecco’s pro forma estimates of the staffing business of Olsten in Exhibit 13, what is your estimate of the value of Olsten if the combined company immediately assumes its long-term target