HRO’s Summer Gets Hotter – Aon to Acquire Hewitt

July is one of hottest months of the year in many areas, and it just got hotter as the trend to bulk up in benefits continues with Aon Corporation to acquire Hewitt Associates for $4.9 billion.

The combination of Aon Consulting and Hewitt will be renamed Aon Hewitt. Russ Fradin, Hewitt’s current head, will serve as chairman and CEO of the new unit, and will report directly to Aon’s CEO, Greg Case. The transaction is expected to close in November after achieving the required approvals.

Once closed, the new Aon Hewitt will become the largest human capital consulting and benefits outsourcing services provider, moving ahead of Towers Watson and Mercer. The new mega-player will start out with a combined $4.3 billion in revenues, 29,000 associates and offices in 120 countries worldwide.

The acquisition will almost triple the size of the company’s Aon Consulting unit, which generated $1.3 billion in revenues in fiscal year 2009 compared to Hewitt’s $3.0 billion. The blended revenue mix, using 2009 data, is 49 percent consulting services, 40 percent benefits outsourcing, and 11 percent from HRO. Separately, consulting revenues were about the same for both companies, at about $1 billion. Eighty-five percent of Aon’s revenue comes from consulting, with the balance from benefits outsourcing. At Hewitt, consulting contributes 33 percent of revenues, with 51 percent coming from benefits outsourcing and 16 percent from multi-process HRO.

Other than multi-process HRO, both companies have similar offering line-ups in human capital health, retirement, investment, compensation and benefits consulting and benefits outsourcing. Hewitt’s focus has been large corporate clients, and Aon Consulting has a large base of middle market clients, which will help reduce overlap. Both also offer talent management services, with Aon more focused on its U.S. practice and Hewitt on providing global services.

Hewitt continues to offer multi-process HRO, and is currently supporting approximately 700,000 participants with $480 million in revenues. After stemming several years of outsourcing unit losses after its acquisition of Exult, Hewitt has returned to acquiring new business, winning both renewals and several new contracts to date in 2010. Hopefully Aon, which offers RPO services but had stopped competing for multi-process HRO deals, will support Hewitt’s current intention to remain a major player in the comprehensive HRO market. We want employers looking to outsource multiple processes to a primary vendor to have a prime set of robust choices.

Due to the major changes and uncertainties in the U.S. market due to the Health Care Reform Act, there will be heightened opportunities for consulting, outsourcing and brokerage of employee insurance plans. Also, understanding and rationalizing employee benefits, compensation and talent management are growth areas for multi-country companies as addressing economic pressures will remain a top priority for the near future.

Ultimately, the point of mergers and acquisitions is growth, and the longer term value of the Aon Hewitt deal is in the global scale and scope of the combined entity and the opportunity to cross sell into each other’s base.

Aon Hewitt will be well-positioned to compete in the middle and large markets around the world for a full range of human capital services from consulting to outsourcing, investments and insurance. HRO’s summer just got hotter, and the summer is far from over!

Linda Merritt, Research Director, HRO, NelsonHall

Explore posts in the same categories: benefits administration, benefits administration outsourcing, hr outsourcing, hr outsourcing research, hro, HRO acquisitions, HRO providers, hro research, mid-market HRO, multi-process hro, nelsonhall, recruitment process outsourcing, rpo

Tags: Aon, benefits outsourcing, Hewitt, hr outsourcing, hro, hro acquisitions, HRO providers, human capital consulting, Mercer, multi-process hro, nelsonhall, Towers Watson

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