Tuesday, 5 August 2008

Michael Page soars on bid approach

Recruitment and resourcing company, Michael Page, soared by 34% today (Tuesday) to 356p on confirmation of an unsolicited bid from Adecco - valuing Page at c£1.15b. This pushed both Hays and SThree up by c10%, although Harvey Nash was unmoved.

A month back I wrote a HotViews piece entitled IT resourcing - so what's up? So what, if anything, can we glean from the Adecco bid?

Does it mean that the market is on the cusp of a recovery? That 'green shoots' have been observed? I'd have difficulty buying that one as I've not heard the 'green shoots' observation from anybody else. Indeed, if you re-read my earlier piece, I think we are only on the first part of the downward slope. Even the nadir hasn't arrived yet.

Does Adecco spy a bargain? Michael Page was already on a higher multiple than most of its peers. If Adecco wanted bargains there are many cheaper.

Does Adecco need Michael Page? David Hancock at Morgan Stanley said that "Michael Page would give Adecco a much wanted position in professional staffing where Adecco hasunderperformed in recent years". But Hancock also said he saw few synegies with little overlap in the UK business where "rolling the two businesses together runs the risk of losing revenue to a third party with customers disrupted by the change" .

Does Adecco need the management? Steve Ingham has a good reputation as CEO of Michael Page and has done a very good job with probably the best organic growth story in the sector - as the valuation metrics show. The problem here is will he (and the rest of his management team) stay? It was an unsolicited bid afterall.

Does Adecco know what it's doing? I only say this because several readers have suggested that they don't...and that the bid is evidence of them not knowing which side is up. I must admit that my questions above don't really put my mind at rest!

On the otherhand, I do believe that this whole sector is in for another consolidation round. You may remember the last major consolidation round happened at the nadir of the last recruitment and resourcing downturn in 1993. The consolidators then turned into the best stock performers in the 1990s before the pre-Y2K downturn hit them for six again in 1998 and the whole cycle repeated itself again. Indeed Adecco bought the UK's Computer People - the leading UK ITSA at the time - in 1999 for £167m. Some would say that resourcers were at the same 'start of the downturn' point in 1999 as they are now.

My only problem is that, just like in 1999, I don't think we have yet reached the nadir.

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