Staffing Industry M&A Report Summer 2009

Staffing Industry M&A Report Summer 2009

The unemployment rate remains high as the staffing industry continues to struggle through this economic recession. For an industry with already low profit margins and sales dropping by 7.7% on an annual rate through the 1st quarter of 2009 from the fourth quarter 2008, it is proving to be another difficult year for many temporary staffing companies.  This is after an already poor 2008 performance with sales dropping by 7.7% for the entire year.  Many companies who regularly relied upon staffing firms to supply human resources are cutting these positions in an effort to reduce any unnecessary costs and fight the recession.  The Human Resources & Employment Services index, down 22.7% through February 27th for 2009, is a primary indicator of the general slump in demand for labor.  Industry gross product is down another 5.1% after a 3.0% drop in revenue in 2008 to highlight the staffing industry’s struggles from the end of 2007 to present.  The near future does not show any signs of recovery as the U.S. government announces unemployment will remain at high levels after rising another.4% in April.  Temporary staffing will be the first to make a push as the economy regains health, and permanent positions will begin falling into place once the industry approaches full strength.  However, the recovery for the staffing industry will not begin until early of 2011; until then, expectations are that revenue will be down 4.3% for 2009 and another 2.2% in 2010. 

Middle market M&A in the staffing industry will continue to be negligible until unemployment begins to rebound.  For those transactions that are being completed, valuations are abysmal, which is a reflection from of the distressed nature of most transactions. Once the industry starts to rebound, the industry should see fewer competitors in the market. This could have a positive influence on future valuations. 

Despite a recent surge from financial institutions, the U.S. economy suffers from a high jobless rate and a continued downfall of production.  Output fell again in the first quarter of 2009, down another 6.1% from the previous quarter.  Unemployment, which plagues 13.6 million Americans, tops a decade high unemployment rate of 8.9%.  Unfortunately, the worst is still to come for the job market; the Fed expects the jobless rate to reach 9.6% and not return to a healthy a level until 2011.  Coming out of the recession, the U.S. normal rate of unemployment is predicted to hit a new standard of 6.5%, according to Bloomberg analysts.  However, there are signs the economy has hit rock bottom and is set to move forward.  The first quarter GDP contraction of 5.7% is less severe than the 5.5% projection by many economists.  Much of the progress is attributed to the 9.6% increase in durable goods purchases.  Many economists also predict positive output growth in the third quarter of 2009.  Consumer confidence is also at its highest since September of 2008, according to the Conference Board’s sentiment index.