Work Service to Go Hunting in Europe

Work Service to Go Hunting in Europe

The giant among employment agencies is preparing for a share issue. Foreign funds will finance acquisitions in a fragmented industry.

Shares of Work Service, the largest company in the personnel services sector in Poland, have risen by over 70 percent within a year and over 200 percent within two years. They are currently the most expensive in history. From the shareholders' perspective, this is a great moment for a share issue because they are being diluted at a high price. The creators of the listed company decided to take advantage of this, motivated by ambitious development plans for which they need capital. A General Meeting has been convened for October 20, during which shareholders are to decide on the issuance of 5.9 million shares, excluding pre-emptive rights, constituting just under 10 percent of the capital.

"This will be a private placement addressed to a selected group of investors. We are focusing mainly on foreign investment funds. This year we have been on a roadshow abroad three times and the funds expressed very high interest in purchasing shares. Their declarations definitely exceeded the number of shares in free float. Thanks to the issue, we will increase the free float. We also want to internationalize the shareholder base by acquiring foreign funds," says Tomasz Misiak, co-founder and head of the Supervisory Board of Work Service.

Cash for Shopping…

He does not want to reveal which funds he spoke with, but we managed to establish that international giants were also present at the meetings. The fact that the issue is intended for foreign investors is also evidenced by the fact that the consortium responsible for the offer includes Wood & Co, which has a large network of contacts among investors in the region and London. In addition to them, shares will be sold by the brokerage houses of mBank and BZ WBK. Work Service does not disclose the price at which it intends to sell the shares. At the current exchange rate, it would raise slightly over PLN 100 million. What does it need such a sum for?

"We want to continue the acquisition strategy — we receive plenty of potential targets from advisors; there are at least a few companies with which we are able to sign an agreement this year. If we manage to carry out the three transactions that are most advanced, the group's revenues would increase by approx. PLN 500 million, and we would enter the Romanian market, strengthen our position in the Slovak market, and implement the plan of acquiring high-margin companies," says Tomasz Hanczarek, President and co-founder of Work Service.

"We will allocate part of the raised money to the buyout of minority shareholders of Work Express and ProHuman companies, thanks to which we will consolidate their growing profits to a greater extent," adds Tomasz Misiak.

…Which Drives Growth

Work Service has already proven that it can carry out announced acquisitions. When it bought the Polish companies Antal and Work Express a year ago, its bosses informed that they were working on takeovers in Hungary, Romania, and Germany. In December, the Polish company took over the Hungarian ProHuman, and in February it boasted the purchase of 51 percent of the German company Fiege.

"All acquired companies are currently generating higher profit than at the time of purchase — ProHuman earned 93 percent more in the first half of the year, Work Express 35 percent more, and Antal 32 percent more," says Tomasz Hanczarek.

Work Service spent PLN 100 million obtained from the Pine Bridge fund and PLN 55 million from the bond issue on these companies. Acquisitions drive the group's growth — in the first half of the year, revenues increased by 79 percent to PLN 735.9 million, and EBIT profit by 84 percent to PLN 32.4 million. In the entire year, Work Service is expected to generate PLN 1.8 billion in revenues (in 2012 it had PLN 918 million), so it will be one step away from the 2-billion target, which it was supposed to achieve... in three years. The company is already the largest in its industry in the region, and this year's revenues will place it around the 70th place on the global market.

"The global market is worth EUR 318 billion, and the largest player has only 6 percent, which shows the scale of fragmentation and susceptibility to consolidation. We want to carry it out, and lower costs give us an advantage over Western competitors," says Tomasz Misiak.

THREE QUESTIONS FOR… HANNA KĘDZIORA, ANALYST AT TRIGON DM Acquisitions Increase Profitability

• Is it good that Work Service is focused on acquisitions? Yes. Profitability on the Polish market is lower than on foreign ones, so takeovers of foreign entities increase the group's profitability. At the same time, they allow for increasing revenues because it is relatively easy to convince a client served on one market to entrust service on others as well.

• Is the integration of acquired companies proceeding smoothly? The acquired companies show an increase in revenues and profits, so it is evident that the takeover by Work Service serves them well.

• Should Work Service continue acquisitions, or perhaps due to rising tensions in the economy, should it suspend them? As long as the strategy brings positive effects, it should be continued. Work Service buys leaders and companies with a significant position in the market. A market leader always commands a premium and is an attractive target for takeovers — postponing such a takeover due to a possible slowdown in the economy creates a risk that someone else will take it over.

Polish Business on a Shopping Spree

Spectacular transactions involving Polish companies that interest international stock exchanges, politicians, and newspapers happen rarely. The last one was the takeover of the Canadian Quadra by KGHM in 2012. Without fanfare, however, our entrepreneurs are capturing further footholds, sometimes buying companies known on local markets. The Wrocław-based fastener manufacturer Koelner changed its name to Rawlplug last year. Why? Because a few years earlier it bought the world's oldest fastener manufacturer from the UK, whose brand is much more international. And this is important if one sells in dozens of countries. Over the last decade, Wadowice-based Maspex has taken over six companies from the Czech Republic, Hungary, Bulgaria, and Russia. Thanks to this, the sweets of its brands sweeten the lives of residents of 30 countries. IT software producer Asseco Poland has subsidiaries in Croatia, Kazakhstan, Georgia, and Russia. Through its Russian subsidiary, it is one of the few Polish companies present in Crimea. A year after the takeover of the German rehabilitation equipment manufacturer Meyra by the Łódź-based Medort, its owners are preparing for another transaction. According to "PB" information, it is to be a complementary company from the US market, larger than Medort and Meyra combined. After the transaction, the company will control 15 percent of the global market.