Kelly Services (KELYA) is not the type of business that gets most investors excited. It’s a cyclical staffing company with thin margins and not much in the way of future growth prospects.
Most staffing companies trade at a substantial discount to private market values and Kelly Services is no different. The staffing industry has been decimated by a slowdown in hiring and fears of AI disruption, among other things.
So why do I like Kelly Services at current prices?
Even with meager future growth prospects and low profit margins, Kelly Services is priced at a ~24% discount to working capital – which is worth $13.39 per share. Moreover, Kelly Services is trading at a 68% discount to its book value, which is currently $31.55 per share.
Many companies that trade at such a large discount to book value are burning money, have been diluting shareholders, or are rapidly approaching insolvency.
Kelly Services is different…
They have a strong balance sheet with a conservative leverage profile, and insolvency risks are very low.
In addition, a strategic investor just agreed to buy 92.2% of the class B shares for $106 million – which means a potential catalyst to unlock value for shareholders could be on the horizon. The deal is expected to close on January 30th, 2026.
At the current share price of $10.22, the risk reward has become asymmetrical.
Below, I walk through Kelly Services’ balance sheet, provide some details on the sale of 92% of the Class B shares, and what a potential takeout offer could look like.
A Strong Balance Sheet at a Discount to Working Capital
As of the most recent quarter, Kelly Services has approximately $473 million of working capital, which works out to roughly $13.39 per share.
Even after backing out the debt of $3.35 per share, working capital less debt equals $10.04 per share, which is right around the current share price.
That figure alone is striking: the stock trades at less than 80% of working capital, a level usually reserved for distressed or structurally impaired businesses.
Kelly is neither.
Kelly Services is a working-capital-intensive business by design. Accounts receivables are large, but they are diversified, short-duration, and historically collectible. Liquidity is strong and Kelly has substantial unused borrowing capacity. Net debt is modest relative to assets, and the company has no near-term solvency pressure.
Net debt to working capital (current assets - current liabilities) is only about 19%, which is very low for a company like Kelly Services that trades at a distressed valuation. That’s what value investors should like – low debt levels with a large working capital buffer.
Depressed Earnings — and Why They’re Misleading
Recent results look ugly. Reported EBIT has been dragged down by goodwill impairments, restructuring costs, and a cyclical slowdown in demand.
Using current conditions, a depressed EBIT of roughly $45 million is a reasonable approximation, implying an EV/EBIT multiple of ~10x.
At first glance, that might not look cheap. But operating margins at staffing companies are highly sensitive to overhead costs, much of which could be stripped out or substantially reduced by a private market acquirer.
Which brings us to the most important development in this situation…
Control is Changing Hands
Recently, Hunt Equity Opportunities agreed to acquire approximately 92% of Kelly’s Class B voting shares, effectively transferring voting control of the company. This matters enormously because it now seems possible that Hunt Equity Opportunities would eventually make a bid to take the company private. Thus, there now appears to be a clock on a potential transaction that could unlock value for shareholders.
