Adecco SA's Acquisition of Olsten Corp. case study discusses the plan of one of the world's leading staffing companies to buy-out the staffing operations of Olsten Corp. It presents the factors which were considered in the proposed acquisition.
Simi Kedia; Peter Tufano
Harvard Business Review (201068-PDF-ENG)
March 15, 2001
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Case answers for Adecco SA's Acquisition of Olsten Corp.
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Adecco SA’s Acquisition of Olsten Corporation
Chapter: Company Overview
Swiss-based Adecco SA was the world’s largest staffing company by 1999 and had grown rapidly, increasing annual sales from 6.4 billion Swiss Francs (CHF) in 1996 to CHF 15.3 billion in 1998 and operating over 3,000 offices in 52 countries.
Adecco shareholders enjoyed nearly a quadrupling of their share values in the time since the firm’s inception. Adecco outperformed its peers over this period and was the first firm in the industry to be certified by the International Organization for Standardization (ISO).
It was the market leader in France, Canada, Switzerland, Australia, and Spain, and was second in the US and UK. It is only in the Benelux countries and Japan where it is fourth or fifth in the market. And along with increasing growth rates, gaining national market share was an important goal for Adecco.
One-third of Adecco’s contracts were with large national or multinational firms with multiple sites. Adecco’s success was the result of a consistent strategy aimed at making Adecco the “employer of choice” and the “supplier of choice.” The first goal of this three-pronged strategy was rapid growth to be achieved both organically as well as through acquisitions. This sales growth had resulted in higher total return to shareholders.
It highly emphasized on its high-value business segments. In December 1998, the board had met to discuss potential acquisitions that would enable Adecco SA to increase market share in the US. Olsten was on top of the list, and the Chairman believed that Olsten’s value was more likely to fall than rise over time.
William Olsten founded Olsten Corporation, a $5 billion home health care and staffing firm, in 1950. After stints as a produce buyer, soap seller, and restaurateurs, he went into the staffing business, placing his sister and his wife as the firm’s first temps. The firm grew rapidly and went public in 1967. By 1998, the company was the third-largest staffing company in the world with global staffing revenues of $3.1 billion, and US revenues of $2.4 billion. It was operating in 14 countries with 1500 offices and had a global market share of 3.9%. It also had a sizeable presence in the fast-growing IT area, which accounted for 12-14% of total staffing revenues.
In the 1970s, Olsten extended its temporary staffing expertise into home health care. Olsten also aggressively expanded its staffing business outside the US. A series of acquisitions from 1994 to 1997 substantially increased Olsten’s presence in Europe and Latin America, and in total Olsten invested approximately $150 million in these acquisitions.
In 1997, although Olsten was the largest provider of home health services in the US, this business had become increasingly difficult. The company faced other challenges as well. Completing the purchase of its European subsidiaries was proving more expensive than anticipated.
Olsten’s debt rose over this period, increasing from $461 million in December 1997 to $606 million in January 1999 and to $746 million by July 1999. Bank imposed unfavorable covenants and disagrees to sanction more lines of credit. Maintaining covenants seems difficult, which could generate bankruptcy also.
As a consequence, Olsten performance lagged behind other firms in the staffing industry and its stock price declined sharply. So, its boards and management came to appreciate the position of the firm and, in particular, its need to finance the repurchase of minority interests and earnouts in 2000. As a consequence, they were actively looking for alliances or mergers by the end of 1998.
Chapter-3: Economy Analysis of USA & Switzerland
The economy is the real player to choose the future condition and course of an organization’s execution. So breaking down the condition and key pointers of an economy are considered constantly essential. At the point when the economy is in the blast, customer spending is additionally high because of the ascent of their wage level. Consequently, they spend more, which implies they purchase more from the business firm. So the company’s income and business execution go higher because of that high spending. Also, when financial subsidence happens, the inverse is right. Thus, customers defer to spend all the more and the company’s execution additionally decays. In the period expressed for the situation, some critical focuses are to be noted. Ten years of loan fee of various securities demonstrates direct holes. This is shown in the following table:
US economy confronted some kind of retreat in the mid-1990s. After that, some recuperation was found in some financial parameters. Occupations and income of general people were expanding at that period. Workers’ pay was found high as to take after an expanding pattern. Yet, this expansion was not all that noteworthy.
A few enhancements were found in family pay which was following an expanding pattern. The unemployment rate took after a declining pattern, however, it was not all that critical too. In any case, because of this decrease, some change was found in the level of expectation for standard living. In contrast, that period, the Swiss economy was opposite to the US economy. There was no recession or crisis. Or maybe financial condition was great and businesses are booming that implies there was a blasting circumstance. The financial development rate was tasteful during that period in Switzerland. As the monetary condition of the business is well-disposed, the business movement was expanded by that period in Switzerland.
Chapter-4: Analysis of the Staffing Industry
A PESTEL analysis is a framework or tool used to analyze and monitor the macro-environmental (external marketing environment) factors that have an impact on an organization. PESTEL stands for Political, Economic, Social, Technological, Environmental & Legal factors.
Political: Political factors are all about how and to what degree a government intervenes in the economy. These can include – government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labor law, environmental law, trade restrictions and so on. Political factors often have an impact on organizations and how they do business. Organizations need to be able to respond to…