Case Adecco

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1. How has Adecco managed to outperform its rivals in the staffing industry? What is the rationale for acquiring Olsten?

Adecco has been nourishing high profits from its global strategy to become the number one or two staffing service firm in each of the major global markets. The firm has had the consistent strategies 1) to achieve fast growth via both organic growth and acquisitions and 2) to gain national market share, at least 20% market share in all major markets, as historically there has been strong correlation between national market share and profitability (EBIT margins) in the staffing industry. The firm also emphasized on optimizing its business segment mix. These consistent strategies have been successful for Adecco, and especially its market-share leadership has proven to be the major factor in outperforming competitors. In recent years, in order to attain more market share, Adecco had acquired several personnel service businesses, including TAD, Delphi Group plc and Career Staff Ltd.

The acquisition of Olsten would increase Adecco’s share in the US market from 6% to 10%, and Adecco would then become the number one firm in this region in terms of market share. Olsten’s staffing business could be merged with Adecco’s US subsidiary, and the integration would potentially create significant synergies. Thus, it is critical for Adecco to acquire Olsten to maintain its global leadership.

2. Based on Adecco’s pro forma estimates of the staffing business of Olsten in Exhibit 13, what is your estimate of the value of Olsten if the combined company immediately assumes its long-term target capital structure (i.e. 20% debt and 80% equity)? For this question, observe the following guidelines.

3. Suppose a consultant proposes that instead of assuming the long-term capital structure of 20% debt and 80% equity, the acquisition should be financed with debt such that this coverage ratio achieves a value of 4 in 2000 and grows linearly to 7 at the...
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