Adia S.A.

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Adia S.A.

Chauderon 4
1003 Lausanne
Switzerland
(21) 341-0313
Fax: (21) 23-4090

Public Company
Incorporated: 1957
Employees: 6,000
Sales: SFr 5.23 billion (US$4 billion)
Stock Exchanges: Zurich New York

Adia S.A. is the world’s second-largest temporary employment company, and its American subsidiary, Adia Services, Inc., is the country’s fourth-largest temporary employment service. The company operates in 26 countries around the world, offering permanent employment services as well as a wide variety of temporary employment.

Adia was founded in Lausanne, Switzerland, in 1957 by Henri-Ferdinand Lavanchy. An independent accountant, Lavanchy got into the employment business when a client asked him to find a worker to fill in quickly on a job. Lavanchy’s enterprise remained simply a domestic employment agency for its first four years in business.

In 1961 the company opened its first international office, in Belgium. Adia expanded further the following year, adding an office in Germany. Denmark came on line in 1965, and in 1972 the company moved overseas, opening an office in Menlo Park, California, its first American outpost.

In the 1970s Adia became one of the first temporary agencies to offer its workers benefits such as health care and paid vacations. In 1974 Lavanchy recruited Swiss executive Martin O. Pestalozzi to help him run the company; Pestalozzi had spent many years working in the United States for a number of consumer services and manufacturing businesses. Pestalozzi later recalled to International Management that when he came aboard at Adia, “all the figures were too small. They all needed several more zeros.” Pestalozzi and Lavanchy set out to change this situation through a policy of aggressive acquisitions in countries around the world. During the next 12 years Pestalozzi spent more than half of his time shuttling around the globe, propounding the theory that the temporary employment industry needed to increase its efforts to provide high quality workers in order to improve its credibility. In that time Adia purchased more than 85 companies, tripling its size and operating in more than a dozen countries. This process was aided by the highly fragmented nature of the temporary industry, which made it easy for a large company to scoop up many small operations.

In the year following Pestalozzi’s arrival at the company, Adia entered the French market, and in 1976 the company moved into the British Isles, buying an agency in Ireland. Also in 1976 Adia made an unsuccessful attempt to expand to Brazil. In 1977 the company purchased the Alfred Marks Bureau, Ltd., a venerable British temporary agency, for $3.4 million from its founder’s son, Bernard Marks. Aside from the United States, the United Kingdom was the only other market in which Adia franchised offices, in addition to owning them outright.

Expansion continued at a rapid pace throughout the late 1970s and early 1980s, as the company branched out to Austria in 1978 and to Holland in 1979. In that year founder Lavanchy stepped aside as acting chairman of the company to become honorary chairman. He was replaced at the helm by Pestalozzi, who became president and chief operating officer. At that time Adia also sold shares to the public on the Zurich Stock Exchange for the first time. The company’s highly valued stock offerings helped to finance further expansion through acquisitions.

The extent of Adia’s growth in the second half of the 1970s became clear at the end of the decade, as the company reported revenues and profits three times higher in 1980 than those in 1975. The company’s far-flung operations, however, had not spawned a large, multi-layered corporate bureaucracy at their center. Operations remained heavily decentralized, as purchased subsidiaries were allowed to continue doing business in much the same way that they had before, to the extent that each made use of its own financial reporting procedures. Although uniform accounting practices were instituted in the early 1980s, controls in general, at Chairman Pestalozzi’s insistence, remained at a minimum. This was signified by the fact that the company’s corporate headquarters staff in Lausanne consisted of just 25 people.

Adia made its largest leap yet in 1981 when it made an acquisition in Australia. In 1983 the company expanded its North American operations when it opened offices in Canada. Japan came on board in 1985, one year before the company added New Zealand, Spain, and Hong Kong. “Our aim is for balanced geographical growth,” Pestalozzi told International Management, “and we would like to be recognized as the best, rather than the biggest, in all our markets.”

Concerned that its steady growth might make Adia the target of an unwanted corporate takeover, Pestalozzi and Adia’s other top managers formed Adiainvest S.A., a holding company, in 1985. Adiainvest purchased most of the equity holdings of company founder Lavanchy, giving it effective control of a majority of the company’s voting shares. This move guaranteed that the current management could stay in charge of the company it was building.

By the following year, Adia’s revenues had increased twelvefold in as many years, and its earnings had grown to 15 times their initial size. This dramatic growth was part of an industry-wide phenomenon, as temporary help agencies became the world’s third-fastest growing industry in the 1980s. After the economic downturns at the start of the decade, employers trimmed their permanent full-time staffs in an effort to keep their human resources expenditures low. With leaner staffing levels in place across many entire industries, business looked more and more to temporary workers to augment their regular staffs for large projects or if business simply picked up. This was in marked contrast to the early years of the temporary employment industry, when short-term workers were used only to fill in for regular employees who were ill or on vacation. In later years, although temporary workers were paid higher hourly wages than full-time employees, this cost was offset by savings on fringe benefits and overhead costs, making temporary help cost-effective.

Benefiting from these changes in the work force of the developed world, Adia in 1986 reported sales topping $1 billion for the first time; the company became the European industry leader, with the largest share of the market in three countries: Switzerland, France, and Germany. In addition, its operation in the Netherlands secured a larger share of that country’s temporary help business, and the company moved up to fourth place in the United States. In the United Kingdom, however, the Alfred Marks Bureau, Adia’s subsidiary, relinquished its leading position in the British market, slipping to number two.

The growth of Adia’s profits was also attributable to the company’s strong emphasis on quality. Because it stressed high-value services, the company was able to charge more for its temporary workers than some of its competitors, giving it higher earnings. In its quest for quality workers and the high margins they brought, Adia implemented in-house training programs and niche marketing. In the mid-1980s Adia moved strongly into the specialized accounting and word processing fields, providing highly skilled workers to its clients. As an investment in its work force, Adia subsidiaries provided specialized training in the latest word processing programs to their employees. Alfred Marks, for instance, trained 10,000 secretaries a year on various computer programs at its London headquarters.

In addition, Adia made a point of allowing subsidiaries with well-known and long-established businesses to retain their names, rather than insisting that they switch to the corporate parent’s name. “If you acquire a company with a strong brand name, it makes little sense to change it to Adia,” Pestalozzi told International Management. These policies, in addition to the company’s broad geographical base, helped to insulate Adia from the effects of periodic downturns in the economy on the notoriously sensitive temporary employment industry. In addition, the company’s extensive American operations acted as a cushion for recessions in the European economy.

Those American operations were run by Walter Macauley, a former executive with the Manpower temporary agency who had been recruited to run American subsidiary Adia Services, Inc., in 1979. In that year the company had sales of $45 million, and it had not yet reached the ranks of the top ten temporary agencies in the country. Adia Services adopted an aggressive two-pronged growth strategy that involved opening company-owned offices in clusters and franchising branches in smaller markets where the company name was little known. As a result of this policy, the company had opened 360 offices by the end of 1987.

In 1984 Adia’s American subsidiary went public, offering 1.2 million common shares in conjunction with its Swiss parent company. Also in that year the American subsidiary entered the permanent placement market, following the lead of Adia S.A., which had maintained the activities of a regular permanent employment agency in addition to its temporary business. Adia Services took part in the 1984 Los Angeles Olympics when the company won a contract to hire and coordinate 7,500 transportation workers for the games.

In keeping with Adia’s policy of niche marketing, the company’s American subsidiary purchased eight companies in 1986 that allowed it to serve various specialized sectors of the employment field. Businesses such as Word Processors Personnel Service and Accountants on Call brought with them higher profit margins on their operations than Adia’s general office placement business. The company’s $45-million purchase of Nursefinders, a medical staffing concern, launched Adia into the fast-growing health care industry at a time when a shortage of nurses was driving up demand and prices for their services. Each new division retained its own president and headquarters and was allowed to operate independently according to Adia’s policy of decentralized control of its acquisitions.

By February 1987 Adia had operations in 16 countries. This figure grew to 17 later that year when the company purchased an agency in Norway. In August 1987 Adia became involved in the attempt by a British firm to take over American temporary services giant Manpower. Adia offered Manpower some form of business combination that would have allowed the American firm to thwart the hostile takeover attempt, but, ultimately, Adia bowed out and the deal went through.

In October of that year the value of Adia’s 70 percent holdings in American subsidiary Adia Services, Inc., was battered, as the stock dropped dramatically in the sharp plunge suffered by the New York Stock Exchange. Overall, however, 1987 was a good year for Adia Services, as the company reported earnings of $11.4 million, up from $6.2 million the year before. The company purchased another temporary agency at the end of the year, adding Temp World, Inc., to its holdings. It also entered the market for computer professionals with its year-end purchase of Comp-U-Staff.

This move was followed by another string of acquisitions by the American subsidiary in 1988. In April the company bought Lee Hecht Harrison, an “outplacement” firm that helps laid-off employees find work. Two months later Adia Services continued its acquisition of firms serving small but profitable niches of its industry when it purchased the StarMed Staffing Corporation. That fall, the company bought Computer Dynamics, Inc., a second data processing concern.

With these acquisitions, almost half of Adia’s American operations were now in highly skilled, specialized fields. The company ended 1988 with record profits of $17.6 million, derived from the activities of 520 offices. All together, Adia had made seven acquisitions during the year. Though fueled by these steady purchases, Adia experienced slower growth in the late 1980s due to the economy-wide shortage of labor. “The younger workers are shrinking in numbers,” Macauley told Personnel Administrator. “We have to do a better job of getting the elderly worker back into the work force,” he added. In an effort to do so, Adia Services introduced its “Renaissance Program” to entice workers over the age of 48 to take temporary assignments. In addition, the company increased its employee training to make use of people with low skills who might previously not have been in demand. In 1989 Adia Services also bought four more temporary agencies.

As its American unit was expanding through the purchase of companies in complementary fields, Adia added to its worldwide operations. In 1988 and 1989 the company opened offices in three more countries, including Italy. Because Italian laws forbid the operation of a permanent or temporary employment agency such as those Adia operated in other countries, Adia entered the only business open to it in Italy, that of intermediary between companies wishing to place an advertisement for a new employee and the newspapers where the ad would run. In this limited fashion the company put itself in contact with the Italian labor market. International expansion continued in 1990 when Brazil, Portugal, Greece, Thailand, and Hungary were added. Morocco and Czechoslovakia were subsequently brought on board in 1991 and 1992, respectively.

In January 1989 Adia’s managers, through their holding company Adiainvest S.A., sold 40 percent of the company to Inspectorate International S.A., a Swiss conglomerate that provided inspection services, security, and computer leasing. The two companies merged, and Inspectorate’s owner, Werner Ray, became a major shareholder in Adia through his stock holding company, Omni Holding AG.

At the end of that year Adia attempted to increase its holdings in the United States market when it made a bid to take over Hestair PLC, a British firm that owned Talent Tree, a large American subsidiary. The attempt was ultimately unsuccessful, despite the generally softening demand for temporary services in the United States and a slowing economy.

By the middle of 1990 Adia’s American subsidiary was reporting continued economic sluggishness and the implementation of cost-cutting measures. Adia announced that it would increase its holdings in the American company to 80 percent, at an estimated cost of $37 million, a move that would allow the American company to take advantage of a tax loophole to significantly lower its tax payments. Despite this measure, economic conditions were difficult for Adia’s American franchise holders. A group of franchisees brought a class action suit against Adia, charging that the company had defrauded them by distributing a falsely optimistic profit plan for its operations. Twenty-two months later a panel of arbitrators ruled that the company was not liable in the franchisees” claims.

Adia’s Swiss owners also suffered financial difficulties. These culminated in February 1991 when Ray, Adia’s half-owner, was forced to sell a 53 percent voting interest in the company, held by his Omni Holding company, for $612.4 million. The majority stake in Adia was sold to a German retailer, Asko Deutsche Kaufhaus AG, and to Swiss investor Klaus J. Jacobs. The new owners promptly moved to replace the company’s managers. In May it was announced that Adia’s current chief executive officer, along with former leader Pestalozzi and another member of the company’s governing board, would be replaced by Nico Issenmann. Issenmann had previously been an executive with Jacobs’s company. The change in leadership took place on June 12, 1991.

By July of that year, Adia’s American subsidiary had reported decreasing revenues. One month later its corporate parent did the same, announcing international revenues down nearly eight percent from the year before, as the economic downturn continued to take its toll. By the second half of the year, Adia’s United States division had resorted to a wage freeze, layoffs in some areas of operations, and the closing of selected branch offices. The company ended 1991 with profits down 3.6 percent. The change in command of Adia became more complete in March 1992, when Macauley, the long-time president of the key American subsidiary, submitted his resignation.

As it looked to the future, Adia S.A. planned greater centralization and consolidation of its international activities. The company also hoped to transfer aspects of U.S. operations, which had enjoyed striking success overall, to other areas of the world.