Barrett Business Services manages other companies' personnel functions — payroll and payroll taxes, health insurance and workers' comp coverage.
For a low-profile company in an obscure business, 2011 was by any measure an eventful year for Barrett Business Services, whose financial performance was strong enough to finish fifth in The Seattle Times’ 21st ranking of publicly traded companies based in the Northwest.
Barrett, which provides outsourced workers’ compensation coverage and other personnel services to businesses, got its first shock that January, when longtime Chairman and CEO William Sherertz died at 64.
Sherertz had run Barrett since 1980, turning the Vancouver, Wash.-based company from a tiny temporary-help agency to a nationwide leader in its niche of the HR world.
He had owned nearly 2.5 million shares of Barrett’s stock, or roughly 25 percent of the company’s shares. His widow, Kimberly Jacobsen Sherertz, who was administrating his estate, sought seats on the board for herself and two nominees, but it turned her down.
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Relations between the board and its largest shareholder deteriorated over last summer and fall. In November, Kimberly Sherertz said she would run her own slate of director candidates and unsuccessfully sought a special shareholders meeting to vote on them.
After a blizzard of acrimonious public statements, rebuttals, charges and countercharges, Barrett announced in March it would buy back all of the estate’s shares, along with 500,000 shares owned by Sherertz’s ex-wife, for $59.72 million, or $20 a share.
Nearly $25 million of the repurchase was paid in cash, the rest in dividend-carrying preferred stock, which the company hopes to redeem entirely before the end of this year.
Though Barrett paid an 8.9 percent premium over the then-market price, analyst Jeff Martin of Roth Capital Partners said it was worth it.
“The fact they bought back the stock was a huge positive,” he said. “It (the conflict with Kimberly Sherertz) certainly was a distraction in terms of the board’s time, the management’s time, and they’ll probably save several hundreds of thousands of dollars in legal fees.”
It’s also now easier for investors to pay attention to the core business, which involves Barrett becoming a “co-employer” of its clients’ workers. Under that arrangement Barrett manages all or most of the client’s personnel functions — payroll and payroll taxes, health insurance and other benefits, and particularly workers’ comp coverage.
Barrett’s clients typically are small to midsize businesses in light manufacturing, shipping, construction and other blue-collar fields.
Though clients are in 23 states and the District of Columbia, the majority of the business is in California.
Over the years, co-employment has grown from a sideline to Barrett’s major business, accounting for 60 percent of revenues last year.
However, managing the workers’ comp aspect can be tricky. Starting late last year and continuing into 2012, Barrett has been setting aside considerably more money to pay claims than planned.
In a conference call earlier this year, Chief Financial Officer James Miller said the prolonged economic slump seemed to “bottleneck” the closure of claims originally filed from 2005 to 2009. Now that those claims are beginning to move and close, he said, claim costs are rising faster than the company’s actuaries had projected.
Miller acknowledged Barrett needed to get a better handle on what was driving its workers’ comp costs from initial claim through final payout, and told investors the company would do deeper actuarial analysis.
“You hope it’s not an issue going forward, but you never know until you get all the costs in,” analyst Martin said.
“They’re reserving at a very conservative rate, which is cutting into their earnings each quarter. But even so, their earnings growth is still very good.”
Drew DeSilver: 206-464-3145 or email@example.com