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Morningstar | Adecco Company Report

In a highly fragmented industry, Adecco stands out as the largest of only three diversified global recruitment providers. With a presence in over 60 countries, Adecco has the ability to service global contracts, which are centrally managed from the company’s headquarters in Zurich, while also being able to effectively service small to midsize enterprises, or SMEs, through its strong local branch network. The recruitment industry has historically been highly cyclical, and due to the low barriers to entry, it is notably competitive, with recruitment firms readily sacrificing margins in order to attract volume. As the largest player in the industry, Adecco has benefited greatly from both economies of scale and learned operational efficiencies over the years. This is evidenced in its revenue per employee and revenue per branch metrics, which have increased by more than 20% and 50%, respectively, over the past decade. Adecco has also made some progress in diversifying away from the general staffing business into the higher-margin professional and solutions businesses. The professional market is estimated to be currently worth over EUR 100 billion globally; thus, with a market of share of roughly 5%, we see significant headroom for Adecco to expand this segment over time, enhancing the profitability of, and reducing the cyclicality of, the overall business. There are also several structural trends from which we believe Adecco will continue to benefit over the longer term. The move to more flexible work arrangements has increased the overall demand for temporary workers, as has the shift by governments toward reduced regulation surrounding temporary employment contracts. In particular, for Adecco, the trend for multinational companies to outsource HR functions as their businesses become more complex is a major boon. Given the limited number of recruitment firms with the capabilities to manage contracts on a global basis, Adecco is well placed to capitalise on this opportunity. Ultimately, we believe that this combination of structural factors will allow Adecco to continue growing organically at levels greater than GDP growth.