Anil Ethanur |
The 72K Crore Staffing Story
It would be difficult to pick the watershed moment in the Indian Staffing Industry evolution to 72,000 Crore Industry. Was it PEs writing the first few cheques, IPOs, MNC staffing companies foray to India or the M&As by the large Staffing Companies?
But if one has to pick the watershed moment it undoubtedly has to be the IPOs of Teamlease and Quess in 2016.
That is a good 16 years after PEs wrote the first cheque to a staffing company in India. If India has become the 3rd largest staffing market in APAC after Japan and Australia, the critical driver obviously has been the growth of the Indian Economy in the last two decades. However, one cannot ignore the grit of Indian entrepreneurs who braved it their future in a complex regulatory laden Industry. Many of these entrepreneurs were able to garner support from PEs, IPOs, and MNC Staffing companies to make India today amongst the top 10 staffing markets in the world.
Three key themes form the making of the staffing industry today. They all played out concurrently and make for some fascinating history
The year 2000 was an important year as the first MNC set shop in India via an Acquisition. It started with Kelly Services acquiring BTI Consultants in an APAC wide deal and entered India. However, Dutch major Vedior’s buying of Ma Foi in 2004 set the ball rolling for India focussed acquisition; Soon after, Adecco entered India by acquiring PeopleOne. In 2005 Allegis announced India by acquiring EASI. The same year Manpower did a JV with ABC’s IT & ITES recruitment business to boost its existing staffing business. Randstad’s followed with the acquisition of Team4U in 2006. In 2008 Italian staffing major GI bought a majority stake in Elixir for its India Entry. 2013 saw the emergence of Japanese interest in the Indian market. Recruit Holdings bought out the franchise operations of Stanton Chase in India. 2014 saw two more Japanese staffing companies entering India via the M&A route: Outsourcing Inc acquired a 51% stake in Alps consulting, and en Japan bought 60% of New Era. Many first entrepreneurs of India were able to cash due to these India entry strategies by global majors. Some of them stayed on but most exited for other pursuits.
If India-Entry for MNCs created the first wave of acquisitions for the quest for margin, and scale improvement paved the way for the second. 2011 was the starting point when Quess acquired Magna Infotech, an IT staffing player. A couple of months later, Manpower group took a 74% stake in WDC, another IT staffing company.
In 2016 Teamlease bought ASAP for 67 crores and NichePro for 29 crores. In 2017 they acquired Keystone for about eight crores & Evolve for 36 Crores. In 2019 they acquired Ecentric for 28 crores and IMSI for 46 crores. Quess’s post IPO acquisitions shored up its EBITDA margins besides getting into newer niches. Amongst them was Vedang Cellular in 2017 where it took a 70% stake for 40 crores, a 61% stake with Allsec for 270 crores followed by a 51% stake at Tata Business Services for 153 crores.
2019 also saw en World Japan with its second acquisition in India by buying a majority stake in IT Staffing firm Future Focus for 81 crores.
The PEs have been part of the staffing Industry’s journey from the beginning. While the big-ticket PE deals are a more recent occurrence the earliest deal witnessed was Canbank Ventures, Usha Martin Ventures & Metdist investment in 2000 when they invested 8 Cr in Ma Foi. JP Morgan partners made a strategic investment of 1 million $ for a 20% stake in PeopleOne (today Adecco), also in 2000 In 2004 US-based New Vernon put 10 million dollars for a minority stake in Chennai based Updater Services (UDS). 2008 saw ICICI Venture buying out New Vernon’s 40% stake in UDS for close to 100 Cr. The same year also saw India Equity Partners investing $8 million in Ikya(now Quess). In 2009 Gaja Capital put 50 Cr in TeamLease and followed up with additional tranches later. More recently, 2017, witnessed two significant PE transactions. Multiples acquired a majority stake in RPO major PeopleStrong for about 400 Cr. In the same year, Motilal Oswal Private Equity bought a minority stake by investing 100 Cr in UDS. Come 2018, Samara Capital, along with Goldman Sachs and Janchor Partners, acquired staffing companies Innovsource and V5 Global Services in deals said to be worth Rs 350 Cr. These two operate under the umbrella of First Meridian Business Services.
In 2016 Teamlease and Quess made history with their successful IPOs and then unleashed a spate of acquisitions. Another successful IPO was by SIS India, a leading security and facility management company in the year 2017.
The IPOs and the attractive P/E ratio Teamlease and Quess commanded got global attention to Indian staffing industry. The IPOs not only boosted the image of the staffing Industry amongst enterprises but also made Teamlease and Quess household names thanks to their steady climb in the stock market.
One has to see the 72,000 crores market size of the Staffing Industry in many angles. Staffing Industry’s penetration to the labour market is less than 1%, India’s labour laws are by and large still complex and dated. 90% of India’s workforce is still informal. Imagine each of these three changing and what it would do to India’s pecking order in the global half a trillion $ staffing Industry.
Even after two decades of start should we say the journey of the Indian Staffing Industry has just begun?