With a second wave of Covid-19 – and accompanying lockdowns – across Europe threatening an economic recovery, recruitment stocks aren’t high up on shopping list of global investors.
Netherlands-based Randstad and Zurich-headquartered Adecco, the world's two largest staffing companies, are each off 20 per cent so far this year, while London-listed Hays, Robert Walters and PageGroup have slumped between 32 per cent and 38 per cent.
So, the pre-dawn stock market announcement on Wednesday that CPL Resources, the Irish recruitment firm led by Anne Heraty, had agreed to be taken over by Japanese group Outsourcing for almost €318 million came as something of a surprise to the market.
The fact that the deal is being set at a record share price of €11.25 – itself an almost 30 per cent premium to a previous all-time high in early March, before coronavirus swept through the economy and sent unemployment levels through the roof – is a stunning result.
It's one that will yield Heraty, who was born in 1960 to a family that ran a small pub, shop and farm in Ballinalee, Co Longford, and her husband and fellow director, Paul Carroll (56) €110.9 million for their combined 34.9 per cent stake in the business.
The agreed sale was unveiled less than two weeks after CPL’s latest annual report revealed that Heraty had seen her salary for the year to the end of June fall by €71,000 to €504,000 as a result of management pay cuts during the coronavirus crisis. The board did not recommend a final dividend for the period in light of uncertainty created by Covid-19 and the group’s aim to maintain a strong balance sheet.
CPL continues to generate more than 85 per cent of its revenues in the State. And the economic backdrop couldn’t be worse.
The Irish unemployment rate, including those receiving receiving temporary Covid-19 jobless benefits, spiked again at more than 20 per cent at the end of October from 15.9 per cent a month earlier, as the Republic succumbed to Level 5 Government restrictions. This has led to the closure of non-retail stores and dealt a fresh blow to the hospitality industry.
But CPL has stood out from rivals on both sides of the Irish Sea as a result of the fact that 80 per cent of its business, according to Goodbody Stockbrokers analyst Gene Hennigan, comes from tech and pharma companies in the Republic and healthcare and life sciences firms in Britain and Ireland.
Indeed, as the Republic has ridden the globalisation wave in recent decades to become the European base of some of the world’s top tech and pharma groups, few companies on Dublin’s Iseq have positioned themselves better to take advantage than CPL.
The State's economic performance has found itself insulated again in recent months – much like during the depths of the financial and sovereign debt crises in the last decade – by multinationals. While the European Commission forecast on Thursday that Irish domestic demand, the best gauge of the underlying economy, is set to slump 6.5 per cent this year, gross domestic product is only set to decline by 2.3 per cent as a result of multinationals' activities.
A study published by the Economic and Social Research Institute last month, entitled The lockdown tale of two economies in Ireland: how big tech and pharma bucked the trend, highlights the divergence between the economy’s robust export sector and the domestic sector, which was hit harder by restrictions and shed jobs as a result.
In addition, CPL – which survived the bursting of the dotcom bubble in 2000, a year after Heraty floated the business to become the first female head of an Irish-listed company, as well as the financial crash – is much more focused on providing temporary staff, or what it likes to call “flexible talent” than peers.
It is also a part of the business, however, that dragged CPL into controversy in 2018, when a Channel 4 Dispatches documentary showed its staff who were hired out as content moderators to Facebook in Dublin were being instructed not to remove extreme, abusive or graphic content on the US group's website even when that content violated the social media company's guidelines. CPL says it took "immediate action" when it became aware of the allegations, include refreshing staff training.
CPL saw its gross profit rise by 4 per cent to €100.3 million in the year to June, driven by a strong performance in the recruitment market before Covid-19 struck its main Irish and British markets in March. It said in its annual report that it was “pleased with the resilience” of its flexible talent division, which generates almost three-quarters of its net fee income, even as the economic slowdown is affecting its business placing permanent staff in companies.
Heraty, who started off her career selling Xerox photocopiers in 1984 after graduating from University College Dublin with a degree in maths and economics, will have little trouble securing the backing of fellow shareholders at an upcoming general meeting to rubber-stamp the sale, according to analysts.
She’s planning to stay on to oversee an acceleration of CPL’s international strategy with the new Japanese owners.
But with Brexit on the horizon and big tech in the firing line, as international digital tax-reform talks are set to ramp up in the wake of the US election, it’s no bad time to be cashing in on the value created in the three decades since Heraty set up shop.