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 threepronged strategy to become the employer of choice. The three goals of
this strategy were:

Achieve rapid growth both organically and through acquisitions.

Adeccos 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. Adeccos 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 wellestablished names in these areas.

Adeccos 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%.

Olstens 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 Adeccos market share.
2) Based on Adeccos 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:

Adeccoassumes$750millionofOlstendebt
AdeccoUSmakesroyaltypaymentstoAdeccoSA,whichmightgeneratetaxsavingsfor
theworldwidefirm.
TBD

35200 - Corporation Finance

Adecco

35200 - Corporation Finance

Adecco

35200 - Corporation Finance

Adecco

35200 - Corporation Finance

Adecco

35200 - Corporation Finance

Adecco