Employees now own Mestel's legal staffing empire

by Julie Triedman.  November 01, 2011.

For associates, equity partnership remains the gold ring that motivates many young lawyers to endure a years-long grind. Now, temporary attorneys who have been slogging away at document review in firm basements and off-site annexes are finally getting their chance at that prize, too.

In August, Mestel & Company, one of the largest legal staffing and lateral placement firms in the country, announced that it had been turned over to its employees under an employee stock ownership plan, or ESOP. The impact is potentially far-reaching: Mestel & Company manages a network of more than 50,000 temporary attorneys and legal staff from 22 offices across the country.

Founder and president Lynn Mestel says that any permanent or temporary employee is eligible to be vested in company stock after completing 1,000 hours of work in a calendar year—a benchmark that many of her temps, whom she calls "contractors," regularly surpass. While she won't say how many have already qualified for stock, she says that "thousands" filed W-2 forms with her company's temporary legal staffing unit, Hire Counsel, in 2011 alone, and roughly one in ten were eligible as of August 22, the date the ESOP plan came into effect.

On a recent afternoon, the 58-year-old Mestel, a onetime Benjamin N. Cardozo School of Law graduate, explained how the idea took shape in early 2010. One of her chief concerns was her legacy. "I was thinking about longevity. My goal was never to sell it, to dump it and leave," she says. Mestel founded the recruiting business a quarter-century ago, and the temp business a few years later. The conjoined businesses, which have tripled in size in the past five years, are now a national partner-placement and staffing behemoth.

As she was pondering the fate of her company, Mestel looked at studies that showed that companies with employee stock ownership plans generally perform better over time than non–ESOP companies (with some notable exceptions—Enron Corporation, WorldCom, Inc., and Adelphia Inc. all had ESOPs). Mestel felt that employees would be as inspired as she's been if given a stake in the business. "It's a tremendous motivator for the contractors to continue to deliver their best work," she says. In the end, financial considerations helped crystallize her decision. "My question was simple: Do I want to give 30 percent to the federal government or to my employees?" Under federal law, businesses that are 100 percent employee-owned via an ESOP pay no federal taxes on earnings.

ESOP equity ownership differs from law firm partnership in one major respect: An ESOP is a passive stake in the success of the business. Unlike a partnership, an ESOP doesn't allow employees to participate in management decisions or strategies. It is run much like a 401(k) retirement account, via a trust.

And even if the company remains as profitable as its recent growth suggests, temps will have to wait several years to see profits accumulate in their ESOP accounts. That's because earnings initially go to pay down the bank and the private investors who lent the money to the ESOP trust that bought out the equity of its founder. Mestel says she remains a major investor. How much has she invested? She won't say.

Adecco boosts third quarter profit 13 per cent

"GENEVA - The world's biggest temporary staffing group Adecco said Tuesday its third quarter profit rose 13 per cent to 145 million euros (S$252 million) and forecast a strong performance for the rest of the year.

The results, which were in line with analysts' expectations, were built on a four per cent increase in revenues to 5.27 billion euros for the three months ending September.

Adecco said it expected "another strong performance in the fourth quarter and remains absolutely confident it will achieve its target profit margin of above 5.5 per cent in the medium term".

France, Adecco's biggest market, posted a seven per cent growth in revenues to 1.6 billion euros while the United States saw a five per cent rise to 903 million euros, the company said."

from news services...

Staffing Industry Deal Landscape

According to Duff & Phelps:

The third quarter of 2011 saw 15 staffing industry M&A transactions close, for a total of 44 staffing transactions so far this year.  Large public companies are choosing their targets more selectively, while privately held buyers are becoming more active.  Healthcare, information technology and commercial staffing (including those providing light industrial and clerical staffing services) experienced heightened demand from buyers.  Notable deals announced recently include:

• SFN Group, a leading strategic workforce solutions company, acquired by Randstad Holding NV for $14.00 per common share through a cash tender offer.
• Adecco Group acquired Drake Beam Morin, a New York based outplacement firm with 2010 revenue in excess of $110 million.
• On Assignment acquired HealthCare Partners, Inc., a privately held locum tenens and physician staffing firm headquartered in Atlanta.
• Groupe CRIT SA announced the acquisition of a 75% controlling interest in PeopleLink, LLC, a commercial staffing company based in South Bend, Indiana, with revenue in excess of $100 million.

Buyers are looking for companies that are growing their revenue and increasing profitability.  Specifically, companies with higher-than-average gross margins, direct client relationships, minimal customer concentration and management teams who have committed to post-transaction leadership have enjoyed the most attractive valuation proposals.  Ongoing buyer interest, coupled with continued earnings improvement for most staffing companies, may pose favorable conditions for even more staffing transactions to close in the final months of 2011 and during the early part of the New Year..As you prepare to close out the year, the team at financial advisory and investment banking services firm Duff & Phelps would be happy to talk to you more in person about the challenges and opportunities that the staffing industry deal environment might pose to your organization.