HRO Consolidation – NorthgateArinso to Acquire Convergys’ HRM Business

On February 4th we wrote about HRO acquisitions being on the rise at a rate of more than one per week. But none were as big for HRO as the March 4th, 2010 announcement of NorthgateArinso acquiring Convergys’s Human Resources Management (HRM) business for $100 million cash ($85 million cash at closing, and $15 million in cash over three years).

What does this acquisition mean for the HRO industry? Is it a good thing for existing customers and new potential clients? You betcha!

NortgateArinso is a prominent European provider in the U.K. and Continental Europe, with strengths in payroll, technology and systems integration. It is especially strong in multi-country payroll, and recently won a seven-year HRO contract with AstraZeneca that included payroll, HR administration and talent management. Payroll services will be provided to AstraZeneca’s 65,000 employees across more than 100 countries.

It has been clear for some time that NorthgateArinso wanted to grow its U.S. business, and Convergys is a wise choice. 

Convergys has been known for its strength in customer service and relationship management, and it is still a sizeable player in multi-process HRO and learning BPO, although it has struggled in recent years to find profitability in HRM. Convergys, though a global provider, generates most revenue in the U.S. where it serves some major U.S.-based clients including several very large multi-nationals. 

• Convergys has one of the largest HRO contracts to date with a Fortune 50 multi-process HRO pharmaceutical industry client, originally valued at $1 billion 

• Convergys has some other big name clients including FifthThird Bank and DuPont (another $1 billion client)

• Convergys has also won several recent contract extensions, including a $185 million multi-process HRO contract extension with the State of Florida

Thus, NorthgateArinso will benefit from this acquistion by gaining a significantly larger footprint in the U.S. market and a marquee book of clients.

Convergys employees will benefit as Northgate will be offering employment to the HRM unit’s approximately 2,300 employees. Though Convergys had maintained its commitment to HRO, most recent contracts have been renewals. This is critically important, but from an employee career perspective, you’d like to be part of a growing business. 

I don’t mean to sound like a CEO giving a speech to make customers and employees feel good, but as a result of this acquisition customers will have more services choices in more countries. They will also have their choice of technology, including an ERP system such as SAP or Oracle PeopleSoft, a NorthgateArinso system, such as its SAP-based euHReka platform, or a SaaS solution, with or without BPO.  

Conclusion

In NelsonHall’s 2010 HRO predictions HRO Today article (published in December 2009), we said the field of multi-process HRO providers would continue to refresh itself with plenty of major players committed to staying in the game. Although multi-process HRO may not come back to life as we once knew it, I think this new combined (and refreshed) company will be a formidable competitor to the large multi-process HRO providers, and will thrive in both the mid and large markets. 

Gary Bragar, Lead HRO Analyst, NelsonHall

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