HRO Holiday Gifting

What do you get the company that is hard to buy for? How about a new niche acquisition? As we ready for the holiday season and the end of the year, I wonder if there will be any interesting, prettily wrapped presents. If you are shopping to buy or sell all or a portion of an HRO business, here are a few gift buying guide pointers.   

Look at the Bow on the Package

Attractive acquisition factors:

•  State-of-the-art technology infrastructure with low operating costs and great end-user experience

•  Integrated service centers in desirable locations, good regional coverage for languages, deep subject matter expertise and knowledge of local regulations

•  Reputation for service quality and relationships

•  Compatibility in values and culture

•  A well-rounded book of current clients

•  Strong revenue stream with a high percentage of multiyear contracts

•  No/low debt

•  Small enough to be affordable and benefit from the leverage of a larger partner

Shake the Package

While the above characteristics are the ideal, it’s much more likely a potential acquisition candidate will have a mix of elements, some more attractive, some not so much.

Extra due diligence is required if the main asset is a current slate of contracts. If the potential acquisition is friendly, take a look at the customer termination clauses to see if there are easy outs. Larger clients often have Change in Control terms that work both ways, including covering what happens if the provider is acquired. Check the penalties for Termination for Convenience. If the penalties decline over time, how near end of term are the largest clients? Are there signs some of the major clients are already on their way out the door?

Last April, Empyrean Benefits Solutions, Inc. made a bid to acquire ING’s Health and Welfare Unit. By June the deal was dead. According to my information, a key to the deal was keeping the majority of the clients intact as Empyrean already had its own new technology platform. When it became increasingly clear that the full book of clients would likely not be retained, the deal fell apart. As a result, Empyrean decided to stay focused on its own organic growth path. (Which, by the way, Empyrean has successfully done, almost doubling its client base by adding 14 new clients so far this year.)

There are providers looking for the right acquisition, and there are those who would like to sell. A match in the HRO space requires the same level of mutual due diligence required in a major provider and client long term contract. A match in the HRO community is also a matter of attractive elements and compatibility.

Happy holiday due diligence and gifting.

Linda Merritt, Research Director, HRO, NelsonHall

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