HRO Provider Acquisitions Heating Up

If you thought that pure-play HRO provider acquisitions were out of vogue – as compared to the recent flurry of M&A activity among broad-based BPO providers and technology-oriented companies, ala HP/EDS, Xerox/ACS – think again, per two significant acquisitions announced this week.

First, Adecco, headquartered in Switzerland, is acquiring U.S.-based MPS Group to strengthen its professional staffing services capabilities and expand its delivery footprint, especially in the U.K., Canada and the U.S. Under the terms of the agreement, Adecco will acquire MPS Group for €782m or $13.80 per share in a cash transaction, a 24 percent premium over the October 19, 2009 closing stock price. The acquisition is to be completed Q1 2010. MPS Group will bring to Adecco professional staffing services to businesses with functional focuses in IT, F&A, law, engineering, marketing and healthcare. This is all good for Adecco, its existing clients and potential buyers. It’s also good for employees of both companies as they will benefit from increased career opportunities.

This acquisition could also be a big boost for Adecco’s RPO business and its clients, as MPS Group has its own integrated talent management platform which includes recruitment, learning and performance management systems, as well as compensation management and succession planning. Our research demonstrates clients have shown increased demand for leveraging talent management platforms, both with RPO and other single line HRO services such as payroll.

This transaction makes good sense as it eliminates the two providers from fighting for the same customers, and $50 million of synergy savings gained by combining the companies is no small potatoes.

Second, NorthgateArinso has acquired Randstad HR’s payroll outsourcing division, CIAN, to strengthen its Dutch payroll outsourcing business. CIAN reported 12 million euro in revenue in the past year. Though small in comparison to Adecco’s purchase, this acquisition is still significant in strengthening NorthgateArinso’s position in the Netherlands. With Randstad deciding to exit the payroll business in the Netherlands, CIAN’s five large and 32 mid-sized clients will gain business continuity benefits by moving to a provider that remains committed to payroll outsourcing. CIAN employees will also benefit, as they will be working for a global provider of HR and payroll services, likely resulting in increased career opportunities within and outside of the Netherlands. This acquisition also makes sense as it strengthens NorthgateArinso’s employee base, enabling it to better service its clients, and adds additional clients to its portfolio.

In my analysis, these acquisitions signal two important HRO industry trends:

•  Acquisitions will continue to support geographic expansion and service delivery capabilities

•  Partnerships between HRO providers – which far outpaced acquisitions this year – will continue for the same reasons as acquisitions, such as access to better technology. But the partnerships will be more focused on areas in which the providers are not directly competing for the same customers, e.g., to service existing multi-country clients that have employees in a country they do not currently service when building that capability organically may not make sense if there is not enough scale of clients and employees to service

What do you think will happen in the HRO acquisitions and partnerships arena?

Gary Bragar, Lead HRO Analyst, NelsonHall

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2 Comments on “HRO Provider Acquisitions Heating Up”

  1. joe vales Says:

    Gary…yes consolidation /increased M&A activity is coming to the HRO market. Pick up a rock and you will find an HRO firm looking for a strategic acquisition. The reality of today’s marketplace is that buyers are looking for providers that can provide service coverage in multiple regions or markets for an expanded array of HRO services. In this environment scale and reach win and HRO coporate development executives are scrambling to find the right strategic partner before the best firms are scooped up by their competitors or by the private equity community now looking to roll-up several HRO point solution providers – particulary in the mid market.

    Alliance or partner/channel programs are an alternative approach to expanding reach or scale. Across the outsourcing and software markets, a hot topic is how to retool partner/channel programs to refect the changing landscape of service providers.In the BPO market, many firms have looked to alliances as a short term fix for extending service coverage . But alliance programs are difficult to manage and maintain. So at the end of the day, corporate development executives are now working non stop to find that holy grail, strategic fit acquisition and we can all expect 2010 to be a year of further consolidation in the HRO market.

    Joe Vales
    Senior Partner
    Vales Consulting Group, LLC

  2. Gary Bragar Says:

    Joe, nicely said, thanks. Buyers, looking to reduce the number of vendors they work with and obtain economies of scale and one system for consolidated reporting, etc., are indeed driving partnerships and acquisitions in the HRO market.

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