Adecco Sa’s Acquisition of Olsten Corporation
ADECCO SA’S ACQUISITION OF OLSTEN CORPORATION
1. How has Adecco been able to outperform its rivals in the staffing industry? What is the strategic and economic rationale for its acquisition of Olsten?
2. Evaluate Olsten’s strategic and financial conditions as of mid-1999, in particular its funding needs and resources.
3. Based on Adecco’s pro forma estimates of the staffing business of Olsten in
Exhibit 13, what is your estimate of total enterprise value? For this calculation make the following assumptions:
a. Evaluate the valuation from the perspective of Adecco U.S.
b. Assume the acquisition was completed as of January 1, 2000
c. Evaluate enterprise value at the long-term capital structure for Olsten, i.e., 20 percent debt and 80 percent equity.
d. The estimated EBIAT was arrived at without deducting amortization of goodwill.
e. Assume that the Olsten’s U.S. rivals (Kelly and Manpower) had a debt beta of 0.2.
f. For this calculation of total enterprise value, do not consider (1) any Olsten debt that might be assumed by Adecco, (2) any payments that Adecco might need to make to minority shareholders of some of its subsidiaries nor, (3) any special tax benefits enjoyed by Adecco SA through its ability to charge Adecco U.S. royalties.
4. Value the Olsten acquisition by understanding three important nuances in the valuation:
a. If Adecco were to assume $750 million of Olsten debt, how would this affect how much they would pay for the equity of Olsten’s staffing business?
b. Some of the enterprise value we calculated is actually “owned by” minority shareholders in some of Olsten’s subsidiaries. How would this affect how much Adecco would pay for the equity of Olsten’s staffing business?
c. The case describes a method whereby Adecco U.S. could make royalty payments to Adecco SA. What is the valuation impact of this “imperfection”? To simplify your analysis, assume that the royalties are 1.5% of revenues and value the net tax savings from the
1. How has Adecco been able to outperform its rivals in the staffing industry? What is the strategic and economic rationale for its acquisition of Olsten?
2. Evaluate Olsten’s strategic and financial conditions as of mid-1999, in particular its funding needs and resources.
3. Based on Adecco’s pro forma estimates of the staffing business of Olsten in
Exhibit 13, what is your estimate of total enterprise value? For this calculation make the following assumptions:
a. Evaluate the valuation from the perspective of Adecco U.S.
b. Assume the acquisition was completed as of January 1, 2000
c. Evaluate enterprise value at the long-term capital structure for Olsten, i.e., 20 percent debt and 80 percent equity.
d. The estimated EBIAT was arrived at without deducting amortization of goodwill.
e. Assume that the Olsten’s U.S. rivals (Kelly and Manpower) had a debt beta of 0.2.
f. For this calculation of total enterprise value, do not consider (1) any Olsten debt that might be assumed by Adecco, (2) any payments that Adecco might need to make to minority shareholders of some of its subsidiaries nor, (3) any special tax benefits enjoyed by Adecco SA through its ability to charge Adecco U.S. royalties.
4. Value the Olsten acquisition by understanding three important nuances in the valuation:
a. If Adecco were to assume $750 million of Olsten debt, how would this affect how much they would pay for the equity of Olsten’s staffing business?
b. Some of the enterprise value we calculated is actually “owned by” minority shareholders in some of Olsten’s subsidiaries. How would this affect how much Adecco would pay for the equity of Olsten’s staffing business?
c. The case describes a method whereby Adecco U.S. could make royalty payments to Adecco SA. What is the valuation impact of this “imperfection”? To simplify your analysis, assume that the royalties are 1.5% of revenues and value the net tax savings from the