Citing that the sour business climate had helped create a “buyer’s market,” Scott Secor and Raleigh-based Castleton Group moved to acquire one of its rivals last month.
The firm has some 20 technology clients which have signed on to use Castleton for a variety of human resource management services — such as hiring procedures and, especially over the past two years, how to handle terminations.
But if what Secor, chief executive officer of Castleton, sees happening with his clients is any indicator, the tech sector is starting to rebound.
“The majority of our clients are smart, progressive leaders who have implemented the changes necessary within their businesses to succeed in this climate,” he says “A leading indicator for us is the ratio of client new hires/terminations. We have seen a slight improvement in new hires over the last two quarters.”
Castleton, which is a sister company of Executive Staffing Group in Raleigh, now has 21 employees and operates offices in Raleigh and Cincinnati. The deal wasn’t disclosed until all PEO clients were notified. Secor projects that revenues will top $100 million this year.
Castleton’s acquisition move wasn’t announced until Friday and terms weren’t disclosed. But Local Tech Wire caught up with Secor to talk with him about the acquisition of rival PEO Job Strategies and the greater meaning of the deal.
Why make the acquisition at this time?
It is not part of the CGI business model to grow through acquisition. However, due to current market influences, it does make sense in certain cases. Hard markets in both workers’ compensation and health insurance are making it difficult for some PEOs (professional employer organizations) to remain competitive. Overall valuations are down creating a buyer’s market in our industry. This is especially true if a PEO employs a business model that does not include aggressive underwriting of risk. From the start, we have worked very closely with each provider to ensure a profitable piece of business for them. This, in turn, has afforded us the consistency so hard to achieve in this area.
Castleton, like many businesses, experienced a downturn in 2001 and through a large part of 2002. Instead of making large cuts in our staff, we made a decision to “weather the storm”. This afforded us the opportunity to make drastic improvements in our knowledge base and overall service delivery model. As the number of new clients was slowing, we were stepping up internal training and development of our people, strategizing with clients and vendors, and refining our internal processes.
When the opportunity to look at Job Strategies came along, we were very confident that we could integrate operations effectively. We were fully staffed, having not made the large cuts through the downturn, our staff was better trained, and we had re-tooled our internal processes. I have been involved in a number of similar transactions, both buyer and seller, and this has been the most seamless. I am very excited about this acquisition.
Did you absorb all employees or were some separated? What happened to senior management of other firm?
By the time we reached the final stages of the negotiation, the senior management of JSI had moved on to other ventures. They were not involved in the day-to-day operations. The remaining eight employees were invited to interview with The Castleton Group. The five employees that interviewed for positions within CGI were offered continued employment, and all are currently working at the CGI corporate office in Raleigh.
Your firm serves 20 tech clients. What are the biggest demands/requests you are seeing these days?
The challenges within our tech clients’ operations has shifted over the last two years, largely based on the economy. Issues surrounding growth, such as providing guidance on hiring procedures and visa issues for foreign employees, is now often replaced by our helping clients on down-sizing issues, like termination procedures and severance packages. We believe this is a cyclical reaction to the times. We are eager to build on our reputation within the tech community and to grow in our services to the tech sector.
Do you see any signs of economic rebound coming from your clients?
Our clients represent a wide spectrum of industry but have some similar characteristics. The majority of our clients are smart, progressive leaders who have implemented the changes necessary within their businesses to succeed in this climate. A leading indicator for us is the ratio of client new hires/terminations. We have seen a slight improvement in new hires over the last two quarters.