FFL Partners takes majority stake in Hawaii HR-services firm

  • ProService is Hawaii’s largest HR PEO firm
  • Houlihan advised FFL; Lazard advised ProService
  • CEO Ben Godsey will maintain minority stake

San Francisco PE shop FFL Partners has acquired a majority stake in ProService Hawaii, the state’s largest human-resources-management firm, Buyouts has learned.

President and CEO Ben Godsey will retain a minority stake in the business alongside other members of management.

Godsey bought ProService in 2005 alongside his partner Dustin Sellars, according to regional media reports. Sellars left the company in late 2013, the report said.

Houlihan Lokey advised FFL on the deal, while Lazard Middle Market offered banking advice to ProService. Ares Capital is providing debt financing on the transaction.

FFL Partner Cas Schneller said the firm set out on a concerted effort about a year ago to pursue opportunities in the PEO, or professional employer organization, segment of the HR services market.

Having met with a couple dozen or so PEOs, ProService was already on FFL’s radar when the Lazard auction for the company got underway earlier this year, he said.

It was following the firm’s first meeting with ProService’s Godsey that FFL doubled down in its efforts to win the deal: “They have the best organic growth and operating metrics we’ve seen in the industry … We were very impressed with [Godsey], his vision and what he’s trying to build. That’s when we really shifted into high gear.”

ProService, Honolulu, offers HR services including payroll processing, healthcare and benefits management, workers’ compensation, compliance and risk management, and more. The company operates a professional employer organization employment model, through which it serves more than 2,000 small- and medium-sized businesses on an outsourced basis.

Schneller declined to comment on financials of the deal, but said he expects ProService will maintain double-digit growth in the foreseeable future.

Much of what drives the financial performance for a company like ProService, he added, is the number of worksite employees. The long-term vision for ProService is to expand its worksite employee network to 100,000 or more, from about 35,000 today, Schneller said.

The HR-services arena is considered highly fragmented, while at the same time employers are putting an increasing emphasis on associated offerings and programs. Underlying secular trends driving growth in the sector include challenges around managing benefits and healthcare coverage, as well as rising compliance and regulatory burdens faced by companies.

FFL, the middle-market firm co-founded by Hellman & Friedman’s Tully Friedman, has invested in the the broader HR services universe.

The PE group in November 2016 agreed to buy Brockway Moran & PartnersCrisis Prevention Institute, which provides training programs for employees confronted with violent situations. FFL in July 2015 bought Interactive Health, a provider of workplace wellness programs, from CI Capital Partners.

The firm also previously backed the C-suite search and recruiting giant Korn Ferry.

FFL has been an active buyer as of late, teaming up with Lee Equity Partners in October to buy a controlling stake in Summit Behavioral Healthcare, which operates addiction-treatment and behavioral-health clinics. Other recent platforms include its September investment in Bacharach, a maker of refrigerant gas leak detection and monitoring instruments.

Update: This story was updated to include comments from FFL’s Cas Schneller

Action Item: Check out FFL’s portfolio: www.fflpartners.com/portfolio

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