Yesterday investors hammered Adecco for its questionable purchase of MPS, an event that didn’t go unnoticed by Adecco’s creditors (FT subscription required; hat tip: Mike Dourgarian) who called into question Adecco’s long-term liquidity. Adecco dropped another several percent subsequent to my post, making the sum total rout of investor wealth $900+ million (from 36.50 to 33.30 EUR or almost 10% on a market cap of $10 billion).
In other words, Adecco’s stock has lost almost 75 percent of its MPS purchase in a matter of two days. Ceteris paribus (European markets have been stable this week), the market evaluates MPS as almost worthless as an Adecco subsidiary.
All that is so yesterday though as competitor Manpower plunged 10 percent itself today in early trading after beating consensus but issuing a soft outlook. The bean-counters attribute the softness to the faltering French and Dutch economies, two of Manpower’s biggest markets.
It’s NOT the Economy, Stupid
I have a different theory about the long-term malaise of European labor markets. Yes, in the short-term the temp staffing giants are going to fluctuate sharply with the economy, but bigger problems await them. Two in particular come to mind: illegal immigration and grey-market labor activity.
Illegal Immigration and Temp Staffing Intertwined
We Americans tend to think of illegal immigration as a problem unique to us, but Liberation’s article today tells a different story.
When it comes to illegal immigration if the USA has a runny nose, then Europe has a cold and the European temp industry has H1N1.
«On veut sortir de l'ombre, ça ne peut plus continuer comme ça», lance Dèh Barou, «c'est pas une vie». Sans-papiers, il enchaîne les missions d'intérim…
“On ne peut plus continuer comme ça”. It can’t go on like that. Big-time regulation and changes in temp industry law is on its way.
Grey-Market Labor Impacting Temp Staffing
European temp staffing companies like to paint a quaint picture of the Rousseauian free spirit trotting off to a temp assignment as if it were a bare-footed walk through field and stream.
You do get a glimpse of that. Every year or so I get to return to the southern side of the French hexagon to see Air France, a client of mine since the early 1980s. Although I’ve largely abandoned the bohemian ways of my youth, I still like to escape for a few afternoons and meet the locals that hang out in the musty, now less-smoked-in cafes.
Invariably you meet that character, someone Jean Jacques imagined. "Man is born free, and everywhere he is in shackles,” the young man on my neighboring bar stool tells me. He likes the freedom of temping, of choosing when he works. He orders his third Pastis, something I can’t keep up with.
But this young man is increasingly the exception as high payroll taxes and other regulations make it less economical to work within the law. Grey-market labor is on the rise. Employers make choices and as legal employment through temp agencies becomes less attractive, they turn to other alternatives.
I have no idea how these demographic realities will play out on the long-term profit streams of the likes of Manpower and Adecco, but one thing is for sure: the business model that drove growth and profitability to the European staffing giants during the last two decades is under assault.