Employment company Kelly Group is in good shape, and up for sale to Adcorp
It seems that scale is increasingly important in the recruitment business; human resources group Adcorp has recently announced that it is seeking to acquire 70% of the Kelly Group, a JSE-listed employment services group (it already has about 30%) for about R2.50 a share, which would significantly increase the size of the company.
Presumably the advantages include lower average costs, access to a broader pool of clients and potential hires, and an improved ability to service large national clients. Of course, one is always a little hesitant with acquisitions like this – most mergers and acquisitions fail to deliver the promised value and end up being a waste of resources and management time. That said, this acquisition looks a little better than most. The price seems reasonable – Kelly was trading at R4 a share not too long ago – and there seem to be some real possible synergies with Adcorp. Time, I suppose, will tell. – FD
ALEC HOGG: Adcorp has acquired almost 30 percent of JSE listed Kelly Group, the parent company of a group of businesses that are engaged in the provision of comprehensive employment services, IT skills, development, and outsourced solutions. Adcorp aims to acquire the remaining 70 percent, for around R2.50 per Kelly Group share. Joining us in the studio is the Chief Executive, the man who did the turnaround at Kelly, Gareth Tindall. Are you happy about these advances? Is this a friendly takeover?
GARETH TINDALL: It's very friendly. I must say that upfront. It's very friendly and I'm happy. You can never ever be negative about a situation like this. I suppose in the market that we operate in, bigger is certainly going to be better. It's about critical mass. Richard and I get on extremely well together, so, yes, I suppose let's put the two together and be a bigger force.
ALEC HOGG: Opportunistic is the word that comes to mind, three years ago – R4.00.
GARETH TINDALL: I suppose, well, yes.
ALEC HOGG: Now they are buying you out at R2.50.
GARETH TINDALL: Yes.
ALEC HOGG: Surely, you should be saying, 'Uh uh, up the ante.'
GARETH TINDALL: Yeah, well I suppose it is not up to us to say, 'Uh uh'. It's up to the shareholders to say that and we haven't gone to them yet.
ALEC HOGG: What does your Board say?
GARETH TINDALL: Well, you set up an independent board of non-execs, independent non-execs, who then take an offer to the shareholders. We are currently busy doing a 'fair and reasonable', and depending on the outcome of that, they will decide whether the price is right or wrong. You know how the five year discounted cash flow is ten-years or twenty-years; it is all too complicated for me. If we work out that the share is right between 2.30 and 2.60, then I assume they'll take it to the shareholders.
GUGULETHU MFUPHI: Are you satisfied with the work that you've done so far at Kelly or wouldn't you want to do a lot more with it?
GARETH TINDALL: Look, I'm a very competitive person. Are you ever satisfied? I suppose where we are at the moment, and when you see our half-year results, the entrants come out later on this month…I have good reason to be satisfied because we've done very well. In fact, the turnaround has been a lot quicker than I thought it would be. I gave myself five years, we've done it in nearly three years, and we're on a growth path now, and, unfortunately or fortunately, we are about to be snapped up.
ALEC HOGG: What were the big problems? What were the big issues/mistakes that your predecessors made?
GARETH TINDALL: Look, I suppose it is always easy to sit here and knock predecessors. I've done turnarounds before and that's always the easiest thing to do, but having said that, in any business it's about the people. You need to pass on energy, passion, and motivation, to other people, to do ten percent more or to do 15 percent more. You take a business at 40 years old – how can it fail? It can only fail because people are dejected, people are de-motivated and possibly, you need some new blood. It's a combination of that and then losing focus.
ALEC HOGG: But Greg Grenville did very well at Avis. He was a master at Avis. He comes along to Kelly and clearly, they needed to bring you in to do the turnaround. What happened there?
GARETH TINDALL: Yes. Look, I ran Hertz. I did a turnaround there. It's a consumer-based business. You're removed from the customer per se, whereas the Kelly Group is a people-based business where you direct. Your interaction is directly with your customers and they are big customers. They are the big banks, they are the Multichoices, they are the Vodacoms, and they're the MTNs so you'd better be close to them. It's about relationships.
GUGULETHU MFUPHI: So it's about relationships certainly. Will your relationship change with the company once Adcorp gets the 100 percent stake?
GARETH TINDALL: Well, at this stage – the honeymoon phase is the early stage – they want management. Management are being showered with praise and so on and so forth. , I've seen this movie before, so I suppose time will decide.
ALEC HOGG: Do you have a Service Agreement?
GARETH TINDALL: I don't and I never have Service Agreements. I don't like them.
ALEC HOGG: Don't you have a golden parachute?
GARETH TINDALL: I'll have to look at the last page. I'm sure there is one there. I'll check when I get back to the office now.
ALEC HOGG: But you know Richard Pike from previous dealings.
GARETH TINDALL: Yes, Richard is an honourable guy and we've had discussions for quite some time, and I don't think I would have turned over so easily if it wasn't going to be a good deal for everybody.
ALEC HOGG: Where are you going to slot in?
GARETH TINDALL: At this stage, I'm not sure but I think the Kelly brand will remain as is. With disparate back office systems etcetera, you are going to have to run this business as it is for the next, at least, a year to 18 months I would say. I probably foresee myself doing that. If Adcorp have global aspirations, which I see that they do have, there may be a need for me to look after the South African operations.
GUGULETHU MFUPHI: Why not venture into another arena? You've been at Hertz and you've been at Kelly.
GARETH TINDALL: Well, if I get approached, I'd consider it. I've never looked. I think it was very much the same as running the Golf Tour. People couldn't believe that I moved from Dimension Data to Hertz, to running a Golf Tour, but when I am approached by good people and I like them, I'm happy to work with them.
ALEC HOGG: Serial turnaround-artist…surely, you look at the environment and you think, 'hang on, there's a company that I can turn around. There's a business that I could apply my skills, and my experience, and my wisdom too, rather than in an operational capacity'.
GARETH TINDALL: Yes, I think the more you do it the more you get used to it because it can be quite depressing when a business is not doing well and you are getting asked a lot of questions by shareholders. However, when you know that you can do it, it's not too bad to ride the waves that are fairly rocky at a time.
ALEC HOGG: Do people come knocking on your door, Gareth? Do you have a reputation now, because you've done this a few times?
GARETH TINDALL: No. No, I don't think so. I would never ever be that arrogant. I think my network has always provided me with opportunities and it's normally happened through some social environment, on a golf course, or somewhere more comfortable.
ALEC HOGG: See Gugu, golf?
GUGULETHU MFUPHI: Golf.
ALEC HOGG: They say that's the way business is done, is on the golf course or in the fashion houses, and I'm not sure which of the two are best.
GUGULETHU MFUPHI: Well, either I improve my handicap or get a stylist because I'm not good at either, for the moment. Gareth, just to get closing comments on the current labour situation in South Africa. Surely, we have a long way to go before we see some kind of uptake in employment.
GARETH TINDALL: Look, I have some very firm comments on the labour situation. There was pending Labour Legislation pertaining specifically to labour brokers that was meant to be promulgated before the elections. The Government chose to hold back on that. I took some advice yesterday, and it seems like this could be delayed by even two to three months. The only analogy that I can draw… It's similar to Metro cops hiding around corners, trying to catch people on cellphones, rather than catching people for going through red traffic lights or sorting out a gridlock in Sandton. I think the strike issue is a far bigger issue. I think it's far more serious and far more urgent for our country to sort that out. It is a labour issue and I don't believe anything else will happen until such stage that that is sorted out. Once that is – let's please hope that that is sorted out as soon as possible – I would certainly hope sanity prevails and that the Government really looks at our Labour Laws in its entirety because we need…
ALEC HOGG: It sounds like, philosophically, you and Adcorp are on the same page on this.
GARETH TINDALL: Yes, we need to create a more conducive environment to create employment in this country and it's a question of simple economics, demand and supply. There's an oversupply of labour and therefore, regulate labour brokers, that's fine, but don't stop it because we create employment.