Temporary employment penetration (temp as a percentage of the total workforce) is at its highest level since August 2007 at 1.88%! The last peak was in November of 2005 at 1.96%.  In fact, some analysts and staffing industry insiders expect that rate to eventually surpass record levels above 2% as more employers choose flexible or project-based staffing in a choppy economic environment.

This is further evidence that staffing industry is hovering near the mid-point of a typical recovery cycle and perhaps without any major domestic or global hick-ups, we’ll have several good years of continued growth ahead of us.

As we near or hover around the mid-point of the cycle, many of our clients and friends in the industry are beginning to dust-off and update their strategic plans. We can help by providing current trends related to your business, thoughts on capital raises and potential transaction analysis.  Have you updated yours?

BTW – If any of you are attending the CIETT Conference (International Confederation of Private Employment Agencies ) this month in London, please say hello to our teammate Alan Bugler, who will be attending.

On March 20, 2012, ASGN announced that it had entered into an agreement to acquire Apex for $600 million in cash and stock (9.2x TTM EBITDA).

The acquisition complements ASGN’s existing IT staffing platform, Oxford Global, which it acquired in 2007.  Oxford focuses on high end IT workers that is places on urgent assignments at average bill rates of $116 per hour.  Apex focuses on more traditional IT staffing skill sets with an average bill rate of $60 per hour.

On a pro forma basis ASGN will have generated $1.3 billion in revenue in 2011 with 30% gross profit margins.

The acquisition has been well received by the investment community with plans to close the transaction by July 12, 2012.

Healthcare reform was a hot topic as well as the continuing adoption of VWS and the impact it is having on margins. Also of particular interest were IT trends currently impacting the staffing community; specifically, this included advancements in ATS systems and social media’s influence on recruiting strategy.

Direct hires – perm placements are accelerating with most companies experiencing a significant growth in year of year placements, indicating that the current cycle might be beginning to mature.
There was a great deal of interest in what was happening in the M&A arena; and I can assure you there is and will be a lot of activity in 2012 driven partly by the threat of legislation effecting capital gains and the interest of Private Equity, Foreign and strategic buyers looking to expand.

I personally met with over 20 PEGs that are interested in the human capital management sector and are very motivated to look at growing companies with quality management teams. Private equity firms typically invest in companies with more than $5 million in EBITDA but there is a smaller group that focus on companies with $2 -$5 million in EBITDA. Both of these groups are actively searching for investment opportunities.

Why are we seeing such good business results while the world feels more uncertain than ever? A few possible reasons for this:

1. We are a relatively small firm that focuses exclusively on advising growth companies. Given this we are anecdotal at best and our focus will ensure that we meet with the “best of the best”. Thus, it is possible that my rosy view is due to the fact that people who I meet with are doing really well but the 99% of others I am not meeting with aren’t doing so well.

2. The law of “Small Numbers”. Perhaps it is easier for successful lower mid-market firms to grow on a percentage basis because they are small and can take share even in uneven markets.

3. Our sectors of focus (primarily pure services and tech-enabled services firms) are perhaps performing better than others? Maybe corporate buyers of services are outsourcing more and thus our sector is benefiting from this trend even while the economy overall is growing so slowly.

4. The unemployment rate of 9% is a gross simplification and generates a lot of news. When you peel back the onion of this statistic, you find that the unemployment rate of college-educated professional/knowledge workers is actually 4% or less! Therefore, our clients in professional services and staffing are seeing excellent demand for their services because corporate America can’t find the knowledge workers it needs to push ahead mission-critical IT initiatives.

The bottom line is that I think we’re seeing great results partially due to the factors above as well as several others I have not mentioned.

What does this conclusion mean to company owners as they plan for 2012 and beyond?

First, don’t overreact to macroeconomic news! For businesses under $500 million, the relevant metric is spend on your services/products by your customer base. Even if the spend is projected to be flat, it is very possible to gain market share with superior service. Therefore, I would encourage you to stretch your organization to achieve aggressive goals next year despite the bad news we read each day.

Second, not all segments are created equally. While it is important to “stick to your knitting,” it may be that the particular segment you are in is not growing while other adjacent segments are growing very quickly. For example, traditional media advertising is declining while on-line spend is increasing. For media firms, this means that a digital offering is important. This evaluation of your business is a crucial aspect of strategic planning. I recommend you periodically take a step back from the business and evaluate the next 2-5 years.

Third, to drive growth in uncertain times, I recommend disconnecting budgeting and compensation systems. If your senior management compensation plans are tied to exceeding budget, it is highly likely managers will forecast conservatively. In turn, creating an environment where lower growth is acceptable. I believe challenging managers to establish more aggressive budgets fosters a results-driven culture whereby individuals are more motivated to succeed, regardless of the outcome.

In conclusion, there are LOTS of businesses doing very very well. I hope yours is one of them!

In summary, the local branch IT and the diversity VMS models have been the most prevalent traits in high growth IT staffing companies in the last 5 years, with some of the top players growing more than 30% a year with well over $100 million in revenues.

A key component to their success has been their commitment to focusing on one strategy. Instead of over complicating what their vision was, the fastest growing firms focused on what they were good at and invested profits heavily back in to the business to keep growing even through the most recent downturn.

The biggest takeaway is that despite the volatility in the capital markets and the recent economic recession, the highest performing staffing companies have found a way to grow through it with good margins. Simplicity and focus combined with rigorous execution was a common trait.

Staffmark is the product of a merger between Staffmark Staffing and CBS Personnel. Staffmark was owned by the Stevens family of Little Rock through its broker dealer and its private equity group. Prior to its merger Staffmark operated out of Little Rock with its back office operated by the Stevens interest. Stevens purchased Staffmark years before and had been holding the company at a loss for a number of years until it merged the company with CBS Personnel taking approximately 28% of the stock of the resulting entity.

Recruit had been actively looking for a major acquisition in the United States as the foundation for a multi-million dollar build out for staffing skillsets. This acquisition provides it with one of the largest CLI operations in the United States and I think you can expect Recruit to make further acquistions in other skill sets over the next couple of years.

Several companies (from across all our sectors) jumped out as “high achievers” as we reviewed anecdotal and factual data. In most cases, these firms sustained growth rates in excess of 25% per year despite downturns and had above-average margins even while attaining scale in excess of $100 million in revenue.

One firm in particular jumped out from the pack: Apex Systems, an IT staffing firm based in Richmond, Va. Apex, started in 1997, has grown organically over time to more than $400 million in sales with industry-leading profit margins. This growth has occurred across two major down turns and amidst an industry-wide trend of declining margins.

Looking at Apex’s growth path and the paths of several other high achievers in other segments such as industrial services and consulting I drew some basic conclusions about why certain firms have achieved extraordinary results even when they are in sectors with fairly low growth rates and margin pressures!

1. Focus and Simplicity of Operating Model Drive Execution
The high achiever firms—without exception—have a fairly simple and clean model that is highly focused. Most of these firms are not highly differentiated niche players (in our opinion) but their execution is unmatched. For example, Apex does not do much “perm” business but focuses almost exclusively on contract placement of IT professionals. This focus allows for excellent management, clear expectations and accommodates growth in new markets via repeatable processes.

2. Growth Culture Drives Hiring Profile
All the high achievers have a strong growth culture and most do so primarily via geographic expansion. Interestingly, much of their growth in new markets comes with existing internal employees moving from the “mother-ship” into the field. Because new employees are hired into the system knowing that if they are successful, they will be moved out into new markets. The type of person attracted to this organization tends to be highly ambitious, career-oriented and willingly mobile. In other words, the fact that these organizations are turbo-charged attracts a different type of person than a lower growth company, thus creating a “virtuous cycle.”

3. Focus on Talent Attraction and Development
I found that high achiever firms spend a lot of time talking about their “people machines” and seem to have an unusually high degree of focus on hiring, training and process. These firms tend to hire less experienced people into entry-level jobs and have what appears to be a somewhat micro-managing environment (the exception to this was overachieving consulting firms where culturally that would not work). Because of this attribute these firms are not looking for the next “hero” which is the experienced sales or delivery person that will produce results but instead are producing reasonably paid players who can step to the next level within the company’s system.

To conclude, I found little or no evidence that brand, differentiation or compensation plans made much of a difference. It seems to me that simplicity of model, driving a culture of growth, and building a “talent machine” are some of the keys to success for all the high achievers across our segments. I hope that these thoughts are helpful as you decide how best to move your business forward. Of course, as the old saying goes, “it’s easier said than done!”