Gryphon Sees Enduring Benefits In Temp Services –

Signed up for its second investment in the temporary staffing industry in the past year, Gryphon Investors is betting that the space is poised for growth across its many niches. In a deal scheduled to close by mid-June, the San Francisco-based private equity firm agreed to purchase a majority stake in Update Legal, a provider of legal professionals and services on a transitory basis. Financial terms of the transaction were not disclosed.

Earning revenues in excess of $100 million annually, New York-based Update Legal places attorneys, paralegals and litigation support professionals to both law firms and in-house corporate legal teams, says Nick Orem, a partner at Gryphon. As a separate business, the company also employs a staff of graphic support professionals that assist clients with their marketing, advertising and presentation needs. A majority of the professionals placed by the company are attorneys.

Orem says that Gryphon had been in proprietary talks with Update Legal for about two years and that De Bellas & Co., a boutique I-banking firm based in Houston, Texas, was hired by the company to negotiate the exclusive discussions.

The temporary staffing industry as a whole was estimated to be worth about $81.6 billion in 2004, according to Staffing Industry Analysts Inc., a research firm focused on the industry. Within that, says Orem, the market for temporary legal staffing exceeds $1 billion.

Looking to pick up some of the slack within its highly fragmented niche, Update Legal recently has been expanding its geographic footprint. Four of the 35-year-old companys nine offices were opened in the past three years, Orem says. He added that once the deal is complete, Gryphon will keep that momentum going by opening new offices in the Midwest and Southeastwhere Update Legal currently has the lightest footprintas well as through making small, strategic add-on acquisitions.

We believe that the flowing rate of growth in complex litigation will continue, as will the rise in M&A activity. That, coupled with the increasing corporate interest in reducing labor costs, will drive superior growth in the temporary services sector for some time to come, Orem says.

But its not just the legal side of the temporary staffing market that interests Gryphon. Last August, the firm acquired Nursefinders Inc., a provider of nurse staffing services to healthcare facilities and private dwellings. The firms thesis in that case was that the shortage of hospital-employed nursescombined with the growing healthcare needs of the U.S. populationwill lead to full-cycle industry growth in the nurse staffing industry, which in turn would create growth opportunities for the investment.

Other areas in the temporary staffing industry that interest Gryphon, notes Orem, include finance and accounting, science and engineering, sales and marketing, and areas of healthcare separate from nursing.

In the case of Update Legal, the current management team, including CEO Joshua Schott, will remain in place and will retain an ownership stake in the company.

Equity for this transaction will come in approximately equal parts from the $420 million, vintage-1999 Gryphon Partners II LP and Gryphon Partners III LP, which is still seeking capital from investors. Gryphon typically places between $50 million and $75 million of equity throughout the life of each of its investments. For financing, Madison Capital signed on to provide senior debt, while Brown Brothers Harriman & Co. will provide the subordinated tranche, Orem says, adding that the deal is split about 50/50 between equity and debt.


Target: Update Legal

Buyer: Gryphon Investors

Financial Advisor: De Bellas & Co.

Legal Counsel: Gryphon: Kirkland & Ellis; Update: Tannenbaum Helpern Syracuse & Hirschtritt LLp

Accountant: Gryphon: Ernst & Young