When a company spends as much on a single acquisition as it
takes home in revenue every year, the deal tends to turn heads on
That can be a good thing or a bad thing, depending on how
ForOn Assignment (
), a professional staffing firm, it was a good thing. On March
21, the company spent $600 million to buy Apex Systems, a
provider of IT staffing services.
At first glance, the purchase price looked a little steep for
On Assignment, which provides consultants to clients in the
information technology, health care and life sciences fields.
The company logged 2011 revenue of $597 million. It had less
than $420 million in annual revenue only three years ago.
But Wall Street cheered the deal. On Assignment's stock price
rose nearly 27% to a 10-year closing high of 17.32 on the day the
buyout was announced. Shares climbed to 19.37 a month later and
currently trade near 16.
"We believe On Assignment purchased Apex Systems for a very
attractive price. Apex's operational excellence should provide
upside to expectations over time," analyst Paul Ginocchio of
Deutsche Bank noted in a July 30 report initiating coverage on
The buyout was embraced in part because of the financial might
it brings to On Assignment. Apex reported about $700 million in
revenue last year. It earned $65 million before interest, taxes
and other items. Its revenue has grown about 30% a year since
Equally important: The deal gives On Assignment a much bigger
"It gets the company more into the mainstream of the IT
staffing market," said Randy Reece, an analyst at Avondale
Prior to the Apex buyout, On Assignment primarily focused on
high-end IT consulting work through its Oxford business unit, he
says. The company wanted to move into the mass market, but only
if it could do so without having to slash its prices and
The Apex deal lets them do that, Reece says. "It doesn't
dilute On Assignment's operating leverage, and the company's
gross margins are still good. It gives On Assignment a more
sustainable growth trajectory than they would have had staying in
the high-end niche of the staffing world."
The Apex unit has already made a big impact financially. It
contributed $99 million to On Assignment's second-quarter
revenue, which totaled $283 million.
Apex's top-line contribution was the most of any business
unit, despite the fact the buyout didn't close until mid-May and
added to results for only about six weeks.
Excluding the Apex numbers, On Assignment posted Q2 revenue of
$184.2 million, a gain of 28% from the prior year. Earnings rose
75% to 28 cents a share, topping estimates by a nickel.
Adjusted EBITDA more than doubled from a year earlier to $32.3
million. The adjusted EBITDA margin was 11.4% vs. 10.3% the
On Assignment posted strong gains at nearly all its business
units. Revenue at its Oxford, Physician and Healthcare segments
each grew at least 35% year-over-year and topped consensus
The one laggard was the Life Sciences business, which fell
short of views with sales growth of 2.2%.
"The life sciences segment saw some softness in the second
quarter," noted Tobey Sommer, an analyst at SunTrust Robinson
Humphrey. "Management highlighted ... a challenging environment
for the back half of the year, as exposure to Europe and
macroeconomic sensitivity impact this practice."
Overall, however, the quarter was greeted with enthusiasm by
analysts and company officials.
"We were able to complete an acquisition that roughly doubled
the size of the company while at the same time achieving
above-market growth in our other businesses," Chief Executive
Peter Dameris said in a statement.
While most of the recent attention has focused on the Apex
deal and its impact on On Assignment's IT business, analysts
sound equally bullish about prospects for the company's health
Health Care Demand
"Health care reform should accelerate the job growth of health
care overall and have a positive impact on health care staffing
demand," Deutsche Bank's Ginocchio noted.
The IT sector is also primed for strong growth in coming
quarters. SunTrust Robinson Humphrey's monthly poll of private
staffing firms has shown steady improvement in technology
staffing growth in recent months.
"Conditions seem ripe for IT staffing, which will comprise 70%
of On Assignment's revenue," Sommer noted.
On Assignment competes against large and small companies for
both consultants and clients. The biggest publicly traded
staffing firms areRobert Half International (
) andManpower (
One advantage On Assignment has over much of the field is its
ability to fill orders quickly, analyst Reece says. That's an
important skill considering that many clients need immediate
access to consultants to help iron out urgent problems.
"One unique thing about On Assignment is its heritage. It was
created as a company that put recruiting ability ahead of
everything else," Reece said. "They have developed expertise in
filling hard-to-fill orders faster than everybody else."