CHILDS COMPANY ADVISES PALMETTO STAFFING IN ITS SALE TO PEOPLELINK

Palmetto Staffing, based in Greenville, SC, closed on its sale to PeopleLink, a leading industrial staffing firm based in South Bend, IN in December 2007.

Because of its focus on the staffing industry Childs Company was able to build a very precise potential buyer list and assist the Palmetto owners in getting a transaction closed within 90 days.

Childs Company closed 7 transactions totaling more than $200 million in total value in 2007.

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CAPITAL GAINS TAX: THE LATEST AND WHAT IT MEANS TO OWNERS Both houses recently passed different versions of a Budget which eliminates the Bush tax cuts of 2003. This is the latest signal that the long-term capital gains tax rate of 15%, which is due to "sunset" in 2010, may very well go away or be substantially increased. Currently, Federal Capital Gains are taxed at a 15% rate on long-term gains. On the other hand, ordinary income is typically taxed in the 35% range. If Federal Capital Gains are increased from the current 15% level or eliminated altogether, a business owner could potentially be exposed to extreme increases in tax liability. For instance, if a business owner opts to sell a business under the current tax rate and experiences a $20 million long-term gain, the owner would be subject to $3 million in Federal Capital Gains taxes. If, on the other hand, the gains were taxed at a presumed 25% marginal rate, that same transaction would result in $5 million in Federal taxes- quite a difference in the pocketbook! The chance that the current Federal Capital Gains tax rate will increase should be a significant factor in considering whether now is the time to sell your company. In 2008, money remains relatively easy to find for smaller deals, many companies have performed well in past years, and buyers remain active. Overall, we believe the environment for sub-$200 million deals remains excellent and, of course, the Federal Capital Gains tax rate remains at the much more attractive 15% rate. [ Return to Table of Contents ]

IT Services:

While early still in 2008, overall trends for the IT Services M&A market are evident.  It appears that the first quarter of 2008 will equal the first quarter of 2007 in terms of deal activity, but, as expected, will be slightly lower than that posted in the fourth quarter of 2007.  The consistent deal flow is a positive indicator as to the state of the M&A market for the IT Services sector, especially given the substantial changes to the macroeconomic climate and outlook.

Significant discussion has surrounded the "slow down" in the private equity markets, but the majority of the fallout has occurred outside of the middle-market sector.  Of the 48 recorded IT services transactions thus far this quarter, five were MBO/LBO situations, the bulk of which were middle-market deals.  There are still opportunities for business owners to recapitalize with the assistance of middle-market focused private equity firms and partner with private equity through the next stage of the company's life cycle.

Additionally, there were a number of cross-border transactions involving strategic purchasers in a wide variety of locations, including Canada, Mexico, and France.  A total of 14 transactions incorporated either an acquisition by a predominantly offshore/nearshore player or a foreign seller.

The government sector (predominantly federal-based, but also with some state and local focus), which has been the most active sector in the IT Services marketplace in recent years, still boasts the most activity but represents a smaller percentage of the total transactions completed than in recent years.  This quarter government deals have represented approximately 22% of aggregate deal activity; in line with last quarter but slightly lower than the first quarter of 2007.  Of particular note is the size of the deals, with fewer large transactions announced than in recent years.  This is due in large part to the massive consolidation of the larger players that occurred between 2002 and 2006.

Other areas of notable activity were the ERP space where there is substantial interest in SAP and Oracle services providers and the MSP space, particularly in the area of security.

Staffing/Human Resourcings Outsourcing:

The Childs Company Public Company Stock Staffing Index fell 7% in Q1.  There were approximately 29 M&A transactions in Q1 2008 vs. 43 in Q1 2007. Notable deals included Randstad acquiring Vedior for $5.8 billion and Allegis Group buying Major Lindsay and Africa, a well known legal placement firm.

The segment indices performed as follows:

• Healthcare
• Professional/IT
• Commercial/Light industrial

At the Staffing Industry Executive Forum, the outlook remained cautiously optimistic for staffing companies with healthcare and professional leading the way and commercial/industrial expectations lagging for 2008.  We believe that additional consolidation will occur as large staffing clients continue reducing vendor lists and employing vendor management systems.  A softening economy could possibly accelerate this trend.

ARM & Teleservices:

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MELANIE McFADDIN JOINS CHILDS COMPANY

Childs Company is pleased to announce that Melanie McFaddin, long-time investment banker to the IT services and staffing industries, has agreed to join the firm as a Partner. Melanie will be based in Northern Virginia.

Melanie has been a leader in M&A in the Information Technology and Professional Services space for nearly thirteen years and has executed over 35 transactions during that span. Melanie is well known for the depth of her industry knowledge and has been a regularly featured speaker at many of the industry's leading conferences.

Jim Childs commented, "I am thrilled that Melanie is joining our team. Her experience and focus are perfectly aligned with our mission of becoming the leading advisory firm to growing companies in the human capital management arena."

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