KKR sells leading Japanese staffing firm, Intelligence Holding Ltd.

Last week, KKR announced the signing of a definitive agreement to sell Intelligence Holdings Ltd., one of Japan’s largest staffing firms to its peer Temp Holdings at an enterprise value of $720 million.

Intelligence provides a wide variety of staffing and IT services, including online and classified job search advertising, permanent job placement, and temporary staffing and business process outsourcing services, in Japan, China and South East Asia. KKR acquired Intelligence in September 2010 for approximately $360 million (at 0.5x revenues). According to several news sources, KKR will realize more than 5 times its initial investment on the sale. For the twelve month period ending March 31, 2012, Intelligence reported revenues of 69.8B Yen ($740MM) and Operating Profit of 5.0B Yen ($53MM), implying a multiple of revenue and operating profit of approximately 1.0x and 13.6x, respectively.

The staffing industry has seen a flurry of deals in the last 18 months, with over 120 deals announced since January 2012, including over 20 transaction announced year to date in 2013. We expect the pace of M&A in the staffing sector to continue over the next 12-24 months due largely to a better overall environment for staffing businesses. Correspondingly, private equity will continue to look for opportunities to invest in the sector with the expectation that staffing firms will experience a period of secular growth (particularly IT staffing) as the economy slowly recovers, temporary hiring increases and unemployment eases. Conversely, those investors who bought into the sector in 2009 and 2010 at depressed valuations will be an ample source of supply as they look to take advantage of the healthy valuations ascribed to high-performing staffing businesses, such as the case with KKR.