On Assignment Acquires Apex Systems – IT Staffing Market Continues to Soar

Yesterday, On Assignment, Inc. announced that it had signed a definitive agreement to acquire Apex Systems Inc., a leading information technology staffing and services firm. The transaction will create one of the largest professional staffing firms and the 2nd largest IT staffing firm in the United States with combined pro forma revenue of $1.3 billion.

Under the terms of the definitive agreement, On Assignment will acquire all of Apex Systems for an enterprise value of $600 million. The purchase price is comprised of $383 million in cash, and newly-issued stock valued at $217 million. The deal is valued at approximately 0.85x revenue and 9.2x EBITDA on a trailing basis. On an EBITDA basis, the valuation multiple paid is in line with what we are seeing the marketplace and was also in line with where On Assignment was trading on a stand-alone basis prior to the deal. Upon closing, the combined entity will have total leverage ratio of approximately 3.75x (debt to EBITDA), signaling the strength of the debt markets and the company’s confidence in the improving U.S. economy. Despite what we view as being a “full value”, On Assignment’s shares spiked in after hours trading signaling the expected accretive nature of the transaction and the market’s endorsement behind it.

Apex Systems is the 6th largest and one of the fastest growing IT staffing firms in the United States. In 2011, Apex Systems had approximately $700 million in revenue and EBITDA of approximately $65 million, representing a margin of nearly 10%. Apex Systems has achieved a CAGR of more than 30% since 2000 and expects to achieve double-digit top-line growth in 2012. The acquisition uniquely positions On Assignment to provide a broader spectrum of IT Staffing offerings, from mission critical daily IT services to high-end specialty projects.

As we have stated over the last several months, the staffing M&A market, particularly for IT services, continues to be robust with interest from both private equity and strategic buyers. A few other recent deals of note include Sverica International’s recent growth equity investment in Bartech, Adecco’s acquisition of Japan-based VSN, Recruit Co.’s acquisition of both Advantage and Staffmark, and Randstad’s acquisition of SFN Group. We continue to see strong market momentum and deal activity over the next 6 months, but maintain a relatively cautionary view of volatility in the marketplace longer-term.