TAMPA - When announcing mergers and acquisitions, many companies use the metaphor of marriage.
But the way Tampa staffing company Kforce Inc. was matched with a West Coast competitor it is buying sounds more like an episode of the reality dating show The Bachelor.
According to a recent filing with federal regulators, Hall Kinion & Associates of Novato, Calif., asked 37 different companies to consider acquiring it last year. Twenty-one expressed interest, including Kforce. Hall Kinion has combined once before, in a 2002 merger with OnStaff of Burbank.
"Hall Kinion has long had a stated goal of becoming a billion-dollar company," chief executive officer Brenda Rhodes said in a conference call Dec. 3, "and we have looked high and low for the right partner for some time now."
Frantic searches for suitable partners are not unusual in the fragmented world of temporary staffing companies, which number about 7,000 in the United States. Kforce is no exception.
In 2001, Kforce acquired Emergency Response Staffing Inc., a Scottsdale, Ariz., company that placed nurses in hospitals, and Scientific Staffing, a Jacksonville company that provided lab technicians to the pharmaceutical industry. Its 1998 merger with Source Services Corp. of Dallas was an even larger deal than the one proposed with Hall Kinion.
During the economic doldrums of the past several years, however, merger activity has slowed.
Now, with the economy improving and the demand for workers expected to grow, investors are showing renewed interest in the staffing industry. That's providing companies such as Kforce and segment giant Manpower Inc. the currency to start buying companies again. Kforce's stock closed Friday at $9.94 per share, up 6 percent for the day and its highest price in more than 31/2 years.
"I would call it an immature industry at this point," Kforce chief operating officer Bill Sanders said. "Very ripe to consolidate."
The Hall Kinion deal was announced in early December, but the companies provided few details until recent filings with the Securities and Exchange Commission.
Under the proposed buyout, which must be cleared by the SEC, investors would receive six-tenths of a share of Kforce stock for every one share of Hall Kinion stock they own. It is estimated that Hall Kinion shareholders would end up owning a combined 19.5 percent of Kforce stock. The stock swap initially was valued at $65-million.
In return for diluting its shareholdings, Kforce would get:
Bigger numbers. Hall Kinion would add 300 employees to the Tampa company's staff of 1,100, 2,000 contract workers to Kforce's 6,000 and 18 regional offices to its 61, all eventually under the Kforce brand.
Total control of the combined entity. Chairman and chief executive officer David Dunkel would retain his position, his team of top executives and his board of directors. Rhodes and most of her top executive team would leave. Rhodes would get a substantial severance payment, an office, a car, health insurance and certain debts forgiven.
A new subspecialty of temporary workers: accountants, bookkeepers and loan processors from Hall Kinion's OnStaff division, who can be placed at mortgage companies, banks and other financial services firms. Kforce's accounting division now focuses on more senior vacancies, such as chief financial officer or controller.
Cost savings. Sanders said Kforce expects to save $2-million per quarter by eliminating duplicate offices, regulatory filings, payroll systems and other redundancies.
There are also potential downsides to the deal, which Kforce hopes to complete by March 31.
Onetime costs associated with the transaction will total between $15-million and $20-million. These include severance payments to Hall Kinion employees, fees charged by investment bankers and lawyers, and expenses related to the closing of roughly 30 redundant offices.
Also, as Wachovia Securities analysts recently noted, Hall Kinion has "significant exposure" to the effect of falling mortgage interest rates because its OnStaff division accounts for half of its revenues.
Although the acquisition might instantly boost Kforce's revenues by one-third, Hall Kinion has suffered significant net losses in recent years. During the first nine months of 2003, Hall Kinion lost 27 cents per share on revenues of $123-million. After earning $1.10 per share in 2000, it lost $5.14 per share in 2001 and 2002. Kforce earned 8 cents per share on revenues of $370-million during the first nine months of 2003 after posting annual losses from 1999 to 2002.
The deal would do little to expand Kforce's national footprint. Kforce now operates in 25 states and Washington, D.C. Hall Kinion would introduce it to just two more states, Oregon and Utah.
There is also the question of corporate culture. In an industry whose chief asset is people, mergers don't always click. Of course, Kforce's decision to eliminate Hall Kinion's management team from the mix might smooth the transition considerably.
The companies need only a simple majority of their shareholders to approve the deal. Already, officers and directors at both firms who control a combined 30 percent of outstanding shares have committed to it.
