Charlesbank Selling Technisource

Charlesbank Capital Partners has agreed to sell IT staffing firm Technisource to Spherion Corp. (NYSE: SFN). The deal is valued at $140 million, including $120 million in cash and a $20 million note.

PRESS RELEASE
Spherion Corporation (NYSE: SFN) today announced that it signed a definitive agreement to acquire 100% of the equity of Technisource, Inc. for total consideration of $140 million; $120 million cash and a $20 million note. Spherion will receive $31 million of working capital. With this acquisition, Spherion expands its presence in the information technology (IT) staffing market and creates an opportunity for significant revenue and cost synergies. With estimated 2007 revenues of $265 million, Technisource is considered one of the nation's leading IT staffing companies and operates through a network of 34 branches with a focus on practice-based staffing and managed services.

 

Roy Krause, Spherion's president and chief executive officer commented, “We are excited about adding this strong and successful brand to Spherion. Technisource is a well respected specialist IT services provider with a mid- market client focus and consistently high margins. The company is an excellent strategic fit for us. When we combine our existing IT staffing business with Technisource, we will be a very significant provider of IT staffing services in North America. Additionally, with this acquisition our professional and managed services business will approximate 40% of total revenues creating a much more balanced mix of business.”

“Both companies bring unique strengths to this merger,” said Stephen Bova, chairman and chief executive officer of Technisource.

 

“Technisource will be able to leverage its practice-based specialty staffing and service offerings across a much larger customer base. Undoubtedly the greatest benefit comes from combining the very talented employees who also share similar core values.”

 

William Grubbs, Spherion's executive vice president and chief operating officer added, “We are pleased to welcome the Technisource team to Spherion. The combination of Technisource with Spherion's IT staffing business will create a market leader with expertise in infrastructure technology services, application development, and managed services. Their focus on value added services will fit perfectly with Spherion's commitment to service excellence.”

 

SYNERGIES AND VALUATION

Technisource's field operations will be merged with Spherion's IT staffing business and its back office operations will be consolidated into Spherion's existing service center. The integration and consolidation are expected to be substantially completed by mid 2008.

 

Once the integration and consolidation are completed there should be approximately $10 million of annualized cost savings. With this level of cost synergies, Spherion estimates that its purchase price is approximately 5.4X estimated 2007 pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) of Technisource.

 

TRANSACTION DETAILS

Spherion will fund the transaction from its existing cash resources and the Company's revolving line of credit and the seller note. Total borrowings at closing are expected to be approximately $90 million with debt to capitalization of less than 20%. The closing of the transaction is subject to satisfaction or waiver of customary closing conditions and regulatory approval.

 

Assuming realization in 2008 of about 50%-60% of the planned synergies, we would expect that Technisource would be accretive to Spherion's 2008 EBITDA by approximately $22 million to $23 million. Accretion to the Company's earnings per share are expected to be in the range of $0.07 to $0.09 in 2008, including the borrowing costs of the transaction and the amortization of identifiable intangibles. At closing, the Company will continue to have sufficient financial resources to support organic growth, business expansion and potential share repurchases. EBITDA and EPS accretion should be greater in 2009 as 100% of the planned synergies are realized and operating cash flow retires debt associated with the transaction.