Staffing Company Investors Respond to Hire Power

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After news that it would acquire Apex Systems Inc. in Richmond, Va., shares of Calabasas staffing company On Assignment Inc. hit their own peak last week.

The stock reached a 52-week high and closed up 27 percent at $17.32 for the week ended March 21, making it one of the biggest gainers on the LABJ Stock Index. (See page 42.)

The company has traditionally specialized in staffing high-end information technology, life sciences and health care positions requiring a college degree while posting some of the highest profit margins in the industry. Now, the announced $600 million acquisition of Apex, an IT staffing service that charges lower rates for less selective positions, not only will double On Assignment’s size but also will complement its business by giving it access to the mainstream market, analysts said.

“The company had a great differentiated strategy and still does, but that strategy did not address a large part of the IT staffing market,” said Tim McHugh, an analyst at Chicago’s William Blair & Co. “This acquisition brings in a very well-run company that can give On Assignment a much broader presence.”

Even before the acquisition, the company looked good to investors. Its share price roughly doubled in the six months leading up to the announcement, with its business fueled by the disproportionately high rebound in white-collar and temporary jobs, areas where On Assignment outpaces its competitors.

And with the merger, it doesn’t appear that business will slow anytime soon. On Assignment’s IT and engineering staffing business is projected to account for 75 percent of revenue as a result of the merger, up from 45 percent. Investors like that because companies are investing in IT now that the recovery is at hand, McHugh said.

“It’s good for the business, because IT staffing is the fastest-growing part of the temporary staffing sector,” he said.

But it’s not all clear skies ahead. By moving away from high-end staffing and dipping into the mainstream, On Assignment will be going up against larger competitors such as Milwaukee’s ManpowerGroup and Glattbrugg, Switzerland’s Adecco S.A. In addition, analysts said the acquisition was highly leveraged and that there could be snags during integration.

Still, the company has a good track record with acquisitions, said Tobey Sommer, an analyst in the Nashville, Tenn., office of Suntrust Robinson Humphrey who raised his target share price from $16 to $20 after the announcement.

On Assignment acquired physician staffing firm HealthCare Partners Inc. in Lawrenceville, Ga., for $15 million in August and Mechelen, Belgium, staffing firm Valesta for nearly $18 million in February of last year. In 2007, it bought IT staffing company Oxford Global Resources Inc. in Beverly, Mass., for $200 million.

Sommer said the latest acquisition could be “a challenge” for On Assignment, but noted that the management team was successful in its previous mergers.

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