Staffing Wrap: Private Equity Proves It’s a People Business. –

We’ve all heard it: private equity is a people business. A number of firms are taking that quite literally lately scooping up companies where people actually are the business — staffing companies.

On the public market side, the staffing industry stock index has faced some tough times this fall. It saw its worst days in October and has forged an arduous comeback with debatable success since then. However, in the last half of this year, the $72 billion staffing industry has also witnessed no less than five buyouts by private equity firms. Among the buyers sporting new staffing companies in their portfolio are Charlesbank Capital Partners, Compass Group International, Madison Investment Partners, Cravey, Green & Wahlen and The Carlyle Group.

By investing in staffing companies, many private equity firms are finding they can piggyback on the growth of sectors like health care and Internet technology without confronting the same risk factors. And, while staffing acquisitions certainly seem to be picking up speed in recent months, the attraction to the sector is not a Y2K phenomenon. According to the May 26th Staffing Industry Report, private equity firms have pumped more than $300 million into staffing companies and professional employer organizations since early 1999. Firms that got into the industry last year include Nassau Capital, Parthenon Capital and Charterhouse Group International.

Pointing Toward Private Equity

Connecticut-based Compass Group International first took a piece of the staffing industry in August 1999 with the acquisition of Columbia Staffing for $15 million.

Then, in October , Compass Group bought 73% of Robert Leed Brown Inc., which provides personnel services under the names CBS Personnel and Employee Management Systems, for the purpose of merging it with Columbia Staffing. The firm, which is aiming to build a $700 million to $1 billion human resources solutions company, is confident that staffing and other outsourced business services will have a sound place in the market for quite a while.

Tupperware, a CBS Personnel client which sells 60% of its products during the bi-annual “big weeks”, exemplifies the need for temporary staffing, said Joe Massoud, a principal at Compass Group. “You need to manufacture, pack and ship over a month long period and you do most of your work in these 2 one-month periods,” he explains. “Staffing up the entire period is not an efficient use of time. So that’s what we see happening in the work force and we think it’s a growing trend.”

Apparently Compass Group is not the only firm who thinks so.

In other staffing deals this quarter, Charlesbank Capital acquired a majority stake in IntelliMark, an IT staffing company, for $50 million; Cravey, Green & Wahlen acquired a control stake in the staffing division of Career Blazers, renamed Employment Solutions; and Madison Investment Partners acquired PMC Staffing Solutions Inc. Lastly, the Carlyle Group, in partnership with InteliStaf Healthcare, acquired the staffing division of Gentiva Health Services for $67.5 million earlier this year.

According to the American Staffing Association’s Quarterly Staffing Survey, the average annual growth rate for temporary help employment has slowed to 8.4% since 1995, down from 17% during the three years prior, the number of individuals employed daily in temporary help jobs has been steadily increasing since 1991. Therefore the need for these services, while affected by the state of the economy, may not be dependent on it.

“Clearly if there’s a hiccup in the economy, this business will be affected like all others,” said Massoud, “but our view is that every hiccup will mean that as you come out of the cycle people will realize the value of having flexible work forces.”