2nd UPDATE: Switzerland's Adecco Buys MPS Group For $1.3 Billion

Switzerland-based staffing company Adecco SA (ADEN.VX) Tuesday said it has acquired U.S.-based MPS Group Inc. (MPS), a specialist in placing professional staff, for $1.3 billion, extending its lead as the world's biggest staffing company by revenue and giving it more resilience to the economic downturn that has hammered recruitment markets.

The move marks a new phase in the consolidation of the fragmented staffing market and gives Adecco a greater presence in the U.S., the home market of closest rival Manpower Inc. (MAN). However, the company said it would also be its last major acquisition for a while as it seeks to preserve cash and its investment grade rating.

MPS reported $2.2 billion of revenue in 2008, adding to the EUR20 billion that Adecco generated. Manpower generated $22 billion in revenue last year.

Global staffing markets have contracted sharply in the past year as companies have cut back on hiring or laid off staff in response to the economic downturn. Staffing companies like Manpower and Adecco have seen revenues fall sharply and have cut costs and some of their own staff. However, the downturn hasn't stopped big staffing companies acquiring smaller rivals as they seek to take advantage of cheap asset prices, position themselves for a recovery and buy operations that are more resilient to the downturn.

Adecco this year also acquired Spring Group Ltd (SRG.LN) of the U.K. for GPB108 million, and that followed last year's multibillion dollar acquisition of Dutch recruiter Vedior by peer Randstand Holding NV (RAND.AE).

The acquisition of MPS gives Adecco bigger professional staffing operations - a high margin business that places highly-educated personnel like medical staff and is worth about one third of the EUR200 billion annual global recruitment industry. Adecco expects the sector to grow in coming years.

Before the economic downturn, the professional staffing industry grew at a rate of about 9% annually, while the placement of blue-collar workers rose about 3%, according to estimates by industry experts.

"With this takeover, we are strengthening our professional staffing business and profitability," said Chief Executive Officer Patrick de Maeseneire, who joined the world's largest recruiter earlier this year. "The ratio of the professional staffing business will move up to 25% from 17% at the moment."

Jacksonville, Florida-based MPS generates the bulk of its sales by placing specialized staff from the information technology, finance, and engineering industry in the U.S. and U.K. Adecco will move its U.S. headquarters to Jacksonville once the agreed deal is completed - the companies expect completion in the first quarter of 2010.

Adecco will pay $13.8 per common MPS share, representing a 24% premium to the U.S. company's closing price Monday, which Vontobel analyst Michael Foeth considered to be fair. To finance the acquisition, Adecco will launch a 900 million Swiss franc ($891 million) convertible bond.

Standard & Poor's put Adecco's Triple-B rating on negative watch and warned it could cut the rating to Triple-B-minus as the "proposed acquisition presents increased operational risks in light of the potential continued deterioration of market conditions."

Adecco's shares, which have gained more than 50% this year so far, were under pressure as a result, and at 1035 GMT, the stock was down CHF2.30, or 4.2%, at CHF52.30. Shares of Dutch recruiter USG People NV (USG.AE) also fell sharply because markets had speculated it could be a possible Adecco target and that now looks unlikely for the time being. The stock was down 4.6% in Amsterdam.

"This takeover will be the last big acquisition for the time being," Adecco CEO de Maeseneire said. "The focus will lie now on organic growth and the integration of MPS and Spring. With the takeover of MPS we have the basis to grow our professional staffing business organically."

However, De Maeseneire didn't exclude small, bolt-on acquisitions.

Analysts welcomed the acquisition, which will boost Adecco's annual revenue by about 10%, be profit accretive one year after the deal closes and help generate synergies of about EUR25 million over the next two years.

Furthermore, analysts said, the deal will help the Swiss firm stem against the steep drop in demand for recruitment services amid the economic downturn.

Even as leading economies such as the U.S. and Germany are moving out of recession, jobless rates are expected to rise over the next few months, according to economists. As a result, analysts expect more merger and acquisition deals in the industry as takeover prices are still deemed to be attractive.

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com

(Katharina Bart contributed to this article.)

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