The Hudson-Star Merger: A Catalyst for Value Creation in Talent and Private Equity

The merger between Hudson Global (NASDAQ: HSON) and Star Equity (NASDAQ: STRR) is far more than a consolidation of two mid-cap firms. It’s the blueprint for a vertically integrated holding company poised to capitalize on two of the most compelling secular trends: the rise of talent-as-a-service (TAAS) and the surging demand for private equity-backed growth. By combining Hudson’s global recruitment expertise with Star’s portfolio of high-growth equity stakes, the newly formed “NewCo” could emerge as a uniquely positioned asset—bypassing public market volatility while leveraging synergies that today’s valuations fail to reflect.

The Strategic Rationale: Building a Hybrid Investment Vehicle

Hudson’s crown jewel is its Hudson RPO division, a leader in recruitment process outsourcing (RPO), which serves Fortune 500 clients across sectors like tech, healthcare, and energy. Star, meanwhile, operates as a holding company with equity stakes in private and public firms, including modular building solutions provider KBS Builders and energy services firm Alliance Drilling Tools. The merger unites these strengths:

1. Talent-as-a-Service as a Growth Engine:
   The global TAAS market is projected to grow at a 9% CAGR through 2030, driven by the gig economy, remote work, and corporate demand for scalable talent solutions. Hudson’s RPO division, which accounts for ~40% of its revenue, is already a high-margin business. By folding it into NewCo, the company can cross-sell talent solutions to Star’s portfolio companies, reducing their hiring costs and creating a recurring revenue stream.

2. Private Equity Exposure with Operational Synergy:
   Star’s equity holdings—valued at $170 million as of Q1 2025—include stakes in high-growth sectors like modular construction (via KBS Builders) and energy infrastructure. Hudson’s operational expertise can improve these assets’ efficiency. For instance, applying RPO’s talent management systems to KBS Builders could cut labor costs, while Star’s energy tools division gains access to Hudson’s corporate clients in oil and gas.

3. NOL Utilization: A Hidden Value Lever:
   The merger unlocks Hudson’s $240M in federal net operating losses (NOLs), which were underutilized in isolation. NewCo’s diversified revenue streams reduce the risk of income volatility, enabling smoother NOL absorption. This alone could boost EPS by ~$0.57 annually within 12 months, per the merger’s accretion metrics.

Valuation Upside: Undervalued Assets, Overlooked Synergies

The market is pricing Hudson and Star as standalone entities, but the combined company’s pro forma $210M revenue and $40M EBITDA (by 2030) target suggests significant upside:

• Cost Synergies: The $2M annual savings are a floor, not a ceiling. Streamlining corporate overhead (e.g., shared back-office functions) could add another $1M–$2M in savings.
• Multiple Expansion: NewCo’s hybrid model—combining RPO’s recurring revenue with private equity’s capital appreciation—could command a higher EV/EBITDA multiple. If the market assigns a 12x multiple (vs. Hudson’s current 9x and Star’s 8x), the implied valuation jumps to ~$480M, a 40% premium to today’s combined market cap.
• Russell 2000 Inclusion: The merger’s $210M revenue target puts NewCo on track to qualify for the Russell 2000 index, which historically attracts passive inflows and narrows bid-ask spreads.

Why Now Is the Time to Act

The merger’s closing in Q3 2025 hinges on shareholder and regulatory approvals—a formality given both boards’ endorsements. Investors should act before integration milestones in late 2025, when the full accretion of synergies and NOL benefits become clearer.

• Risk-Return Profile: The primary risks—regulatory delays or integration missteps—are already priced in. The merger’s stock-for-stock structure (STRR shareholders receive 0.23 HSON shares) creates a natural hedge, as HSON’s upside offsets any near-term volatility in STRR.
• Catalysts Ahead: The Q3 integration will clarify NewCo’s capital allocation strategy, including potential dividend payouts from Star’s portfolio returns. Meanwhile, the May 22 conference call will provide granular details on revenue synergies and EBITDA pathways.

Conclusion: A Rare Opportunity in a Crowded Market

In a world of overvalued tech stocks and yield-starved fixed-income markets, NewCo offers a compelling alternative: a hybrid firm blending the recurring cash flows of TAAS with the high-growth exposure of private equity. With a 40% upside to its 2030 EBITDA target and immediate accretion from cost savings, the merger’s valuation is a bargain.

Investment Action: Buy HSON now, targeting a 12–18 month horizon to capture the synergy realization and Russell 2000 inclusion. The merger’s Q3 closing and subsequent operational milestones will validate this thesis—don’t wait.

The Hudson-Star merger isn’t just a consolidation—it’s a masterstroke to build a future-proof investment vehicle. The only question is: Will you be on board?