Hire Technologies Is The Ground-floor, Roll Up Stock With All-star Board

HIRE TECHNOLOGIES–HIRE-TSXV
IS THE GROUND-FLOOR,
ROLL-UP STOCK WITH ALL-STAR BOARD

The Plan Is To Go North America Wide Rolling Up Staffing/Recruitment Firms

HIRE Technologies CEO Simon Dealy is embarking on a North America wide roll-up of the highly fragmented staffing/recruitment sector.

And his timing could not be better.

COVID-19 has created a gaping hole in the $150 billion recruitment and staffing industry.  This staid industry has had to pivot on a dime and give a nickel change because now every management position and knowledge worker must be able to work remotely.

Working remotely will be the #1 global change to come out of the COVID-19 global pandemic.

So not only has the skill set of tens of thousands of temporary workers had to change, the talent pool has opened up nationally—you don’t have to be in the office anymore. You don’t need local talent anymore.

And that brings up even more new issues—now companies are opening their business to the internet for remote workers, so IT resiliency and cyber-security have become MUCH more important.

All this change (never cheap!) is happening as the number of placements is falling by 15-30% this year, says authority Staffing Industry Analysts.

That puts a highly fragmented industry (2000 firms in Toronto alone!) in a very tough financial spot.

HIRE is the only pure play staffing and recruitment company in Canada, and it hasn’t even been public a year yet. But this won’t just be a Canadian play. They have North American ambitions.

And Dealy is using his all-star board of directors to start a much-needed roll-up strategy to deliver better service to clients nationally, and help the entrepreneurs he is buying up—thrive, with their brand intact.

I think the biggest winners however, could be HIRE shareholders.  Roll up strategies are highly accretive, with the pubco acquirer often being valued at 2x the EBITDA multiple of the privateco they’re acquiring.

I’m going to show you the two public roll up plays that his board members have done—and made their own shareholders 10x their money in the process. I can’t speak to valuation, but if Dealy can execute the business the way his two board members did, HIRE will be a much larger company within just a few quarters.

And when I explain Dealy’s capital allocation plan on his M&A—how he pays for these deals—I think you’ll agree we have the right man at the helm here.

First off however, understand that staffing agencies are not optional or luxury items for business.  So many companies outsource now that staffing & recruitment was declared an essential service during the pandemic in Canada.  They are a key utility in the North American workplace. The average placement for 75% of HIRE’s business is 18 months, which is a lucrative recurring revenue stream.

Second, Dealy & his team clearly know how to run a business—EBITDA and earnings actually went UP during COVID-19, even as revenue declined during the pandemic.  With an EBITDA loss of just over $50K in the last quarterly, they are very close to breakeven.   (This does not include two new recent acquisitions!)

Dealy’s plan is to use his business management experience and his consulting background to layer in different technology tools for companies—creating a new revenue stream and embedding HIRE into their clients.

Example: HIRE just partnered/ invested into a COVID-19 risk platform with Atlas ID, where a digital wallet can securely hold a person’s COVID-19 results and hold all the COVID-19 protocols for workplaces. (It can also store benefits information and credit score data, among many others, but you get the picture!)

HIRE also gets a chunk of that user revenue.  Dealy says he has a pipeline of technology additions for 2021.

He expects this revenue to have a higher profit margin than a regular recruitment business, but may take some time to become material.  He plans to make it a key growth area for HIRE.

Dealy says he can do one M&A deal a month, and so far he is proving that out.  The 51 year old Dealy is an M&A czar, doing numerous transactions around the world while he worked out of Boston MA for Control Solutions.

His purchasing strategy for this continent-wide roll up is genius.  Dealy uses a combination of very little up front cash, some stock and an earn out provision for down the road cash to buy these companies.

He bought a western Canadian outfit called The Headhunters in September for $400,000 cash—that was 4x EBITDA or just 0.2x revenue.  Vendors had to guarantee $100K in EBITDA for the next couple years—and if they grow their business, they get more in two years. Dealy closed the deal in just four weeks!

If the management being acquired take stock—which should quickly get a bump from the increased revenue and EBITDA their firm is bringing—shareholder dilution can be kept to a minimum.

With deals like this, Dealy has shown he can execute great M&A.  But it sure doesn’t hurt to have two recent Canadian roll-up successes on his board.

Helping craft this roll-up strategy is board member Hamed Shahbazi, CEO of Well Health Technologies (WELL-TSX; $1.20 – $8.20 this year), one of the most successful stocks of 2020. The chart below shows that if you had bought $10,000 at the bottom, it would now be worth $800,000!

WELL’s strategy and execution of rolling up digital health technology and medical clinics—and layering in some technology—has worked out incredibly well for shareholders.

The other board member with a great roll-up success is Sean Cleary, who was senior management in the early days at People Corporation (PEO-TSXv).  People has consolidated the group benefits industry—another beautifully executed roll-up strategy:

Each and every roll-up transaction becomes hugely accretive on a per share basis.  Those accretive transactions then also drive rapid rates of growth of earnings and cash flow on a per share basis. People did such a good job they were just bought out by a Private Equity group for over $15/share!

Roll-ups have produced some of the most incredible stock market gains of the past fifty years.  My personal longer term favorite is Boyd Group Services (BYD-TSX), which has rolled up companies in the fragmented auto body and glass repair industry.

A $10,000 investment in Boyd 20 years ago is worth $911,000 today……

These acquisitions end up being a Big Win for the small privately-owned staffing companies that HIRE acquires. The value in the stock they get in HIRE will now increase at a much faster rate than the value of their private company—all their equity will now grow at roughly 9x cash flow from that time onwards vs. the roughly 4x cash flow had they stayed private.

Here’s another KEY point: Dealy says that HIRE lets the entrepreneur continue to run their business under their legacy brand name rather than get swallowed by a giant conglomerate.

This is exactly what Warren Buffett does with the entrepreneurs who intentionally seek him out–so that they can sell their businesses to Buffett’s Berkshire Hathaway.

The sellers get to keep their brand and keep executing that strategic plan; they get access to the capital, but they don’t have to do any of the back office operations. So they now can just focus on growing their business with a lower operating structure.

This is why HIRE will be the acquirer of choice for the best of these fragmented staffing companies.

Between financing part of the deal, using your stock and earn-out provisions, a roll up strategy is capital light and can be done aggressively.  Dealy says now is the time to do that—when the need for capital is great, and the barriers to growth are down.

CONCLUSION—HIRE IS THE CONSOLIDATOR OF CHOICE

Today the staffing industry is massively fragmented and localized.  Exactly the opposite of how it needs to be set up for remote staffing.

Staffing is now work from home.  Traditional staffing companies aren’t geared up to fill that need.  You need a national presence, need the technology to allow for hiring nationally.

HIRE Technologies has both and is doing it with a roll up strategy—with two coaches—Shabhazi and Cleary—who have made shareholders A LOT of money doing this same strategy.

You can see that HIRE Technologies is where Shahbazi’s Well Health Technologies was a couple of years ago.

(And Shahbazi is on the board!) They’ve got a really good runway for this thing. Good road map. And there’s thousands of companies out there for them to play in, and so even with big competitors out there, I’m very confident HIRE can execute their strategic plan.

This is a ground floor entry point—the stock is under $1–on the company that is best positioned to be the biggest beneficiary of the work from home and stay at home era that COVID has ushered in.

DISCLOSURE—I’m very long.

DISCLAIMER—Hire Technologies management has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity