KELYA - Kelly Services Inc. (KELYA) - Expands IT Staffing Capabilities with Acquisition of Softworld

Softworld Acquisition. In its largest acquisition to date, Kelly is paying $215 million for Softworld, a leading technology staffing and workforce solutions firm serving clients across multiple end markets, including financial services, life sciences, aerospace, defense, insurance, retail, and IT consulting. The acquisition is in-line with Kelly's goal of expanding offerings in faster growing, higher margin specialties.Fast Growing, Award Winning Firm. Softworld was named to Staffing Industry Analysts’ 2020 List of Largest US Staffing Firms. This marks the first time the firm made this list, and makes Softworld one of only seventeen companies that were named one of the Fastest Growing, as well as one of the Largest Staffing Firms in the US. Softworld also has received three consecutive ClearlyRated Best of Staffing awards.Financing. Although the Company has yet to release details on how it will finance the acquisition, we would note Kelly had $223 million of cash at year-end, although a portion of this will be needed to pay deferred FICA taxes, $200 million of availability under its revolver, and $97 million of availability under its securitization facility. In addition, Kelly has the assets related to its ownership in Persol Holdings and the PersolKelly joint venture.Financial Impact. We expect Softworld to add north of $100 million of annual revenue and we would expect the firm's gross margin to be at least the 20% posted by Kelly's existing STEM business. We expect management to provide additional color on the acquisition on the next earnings call and we will update our models at that time.Maintaining Outperform. We are maintaining our Outperform rating and $25 12-month price target. We believe the worst is behind Kelly and the specialization focus will help drive faster top line growth and higher margins over time. We believe the shares represent a favorable risk/reward at the current price.Read More >>