1) How has Adecco managed to outperform its rivals in the staffing industry? What is the

rationale for acquiring Olsten?

Adecco has been able to outperform rivals due to its consistent three-pronged strategy to become the “employer of choice.” The three goals of this strategy were:

Achieve rapid growth both organically and through acquisitions. Adecco’s historical data showed a strong relationship between growth and returns, and thus was able to achieve high total return to shareholders by pursuing growth.

Obtain “number one or two in market share in the 11 biggest national markets, and… attain a 20% share of each market.” Adecco’s data showed a very strong relationship between profitability and market share; namely, EBIT margins were positively correlated with market share.

Emphasize specialty, high-value segments. Although specialized staffing was only 12% of sales, Adecco had acquired multiple well-established names in these areas.

Adecco’s primary goal was to increase its market share because of the relationship between

market share and margins. Olsten was an ideal acquisition candidate because it would allow

Adecco to obtain the number one seat in the US, increasing its overall market share from 6%

currently to 10%. Olsten’s strong market presence in the East largely complimented markets

where Adecco was less prominent, and Olsten offered a presence in the specialty IT business

that would increase Adecco’s market share.

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)?

TBD

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 end of the forecast horizon

(nine years ahead). Note that the ratio “times interest earned” is the coverage ratio defined as

EBIT/(Interest Expense). Calculate the enterprise value under this financing assumption.

Would you agree with the consultant's recommendation for the financing of the acquisition?

Why or why not?

TBD

4) Show how your estimated value from Question 2 changes if you consider the following two

aspects:

Adecco assumes $750 million of Olsten debt Adecco US makes royalty payments to Adecco SA, which might generate tax savings for

the worldwide firm.

TBD

35200 - Corporation Finance Adecco

35200 - Corporation Finance Adecco

35200 - Corporation Finance Adecco

35200 - Corporation Finance Adecco

35200 - Corporation Finance Adecco