Benefits Administration Poised for a Good Year: Part 1

If last quarter’s earnings reports are an indication of what will continue in 2012, then benefits administration service providers will have a good year.

Some of the financial highlights include Morneau Shepell’s record growth for Q1 of 22% year-over-year (y-o-y). Modest growth was reported elsewhere, but it’s significant in light of the economy and pending health care reform legislation. Providers with modest growth include Aon Hewitt, Towers Watson, Mercer, and T. Rowe Price.

Aon Hewitt’s outsourcing segment reported 3% y-o-y growth, 3% organic growth. Its organic growth began last quarter after four consecutive quarters of either flat or negative organic growth. New client wins are for its retiree health care exchange offering, dependent eligibility audits, and absence management services.

Towers Watson’s benefits segment reported 2% y-o-y growth, 3% organic growth. Its technology & administration solutions (TAS) line of business, which incorporates majority of its benefits administration revenues, had mid-single digit constant currency growth. Towers Watson also reported some new client wins for pension administration services within its retirement business.

Mercer’s outsourcing segment reported 0% y-o-y growth, 4% organic growth. The good news is that its outsourcing segment has recovered from its steady decline of organic growth that began in Q3 2011; the bad news is that growth was from 2011 client wins that came on this quarter, so this positive level might be temporary.  However, Mercer’s health & benefits consulting segment reported strong growth of 7% y-o-y, 6% organic, as did Towers Watson, which reported low double-digit constant currency growth for its health & group benefits segment. This is significant in that this strategy work may flow downstream and result in benefits administration contract awards later this year.

T. Rowe Price, although not a TBO service provider, reported 3% y-o-y growth for its administrative segment, which includes revenues from retirement plan services (RPS). RPS consists of DB, DC, and non-qualified plan administration services.

A new company to monitor is WageWorks, a H&W service provider offering reimbursement account and COBRA administration services. It commenced its IPO of 6.5m shares of common stock for $9 per share on May 10^th.

Tune in later this week to learn about the additional signs pointing to a good year for benefits administration service providers.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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ADP’s Meeting of the Minds, not just an Ordinary Event

I attended ADP’s Meeting of the Minds (ADP MOTM) that happened last week March 11 to 14 in Dallas. This was my first time attending, and I didn’t quite know what to expect until I arrived—well, how about ~900 enthusiastic ADP clients. This is an annual event of which ~30% of attendees were first timers.

Sure, there were a few ADP presentations and demonstrations on ADP’s latest products and services, but many of the sessions were not conducted by ADP and were instead facilitated by HR practitioners and clients. Professional development would be a good way to summarize it. As they say, everything is bigger in Texas—how about ~170 sessions that you could attend to learn about everything from Healthcare Reform to Payroll taxes, to RPO, to best practices across a number of services, and functions including shared services, recruiting, change management, etc. There were also hands-on training sessions, of which I attended Learning, part of ADP’s Talent Management.

I could write my entire blog talking about the keynote speaker, Emmitt Smith, and the fun social events, but I’ll shift gears to talk about HRO to keep with our blog focus.

To begin, it’s important to share ADP’s three priorities, as stated by CEO Carlos Rodriguez, that are important to advance ADP as a:

• Technical leader
• Service leader
• Global leader.

Regina Lee, president of ADP’s national and major accounts, GlobalView, and ADP Canada, spoke about four key areas of investments that were made by ADP:

• Integrated Human Capital Management: including Vantage HCM and Workforce Now
• Talent Management: including the integration of performance management, succession planning, and learning. ADP’s talent management platform has over 100 clients
• Benefits Administration and Healthcare Management: having acquired Workscape in 2010 to strengthen ADP’s benefits administration capability, in addition to Workscape’s talent management and compensation capability. On March 8, ADP announced it has entered into an agreement to acquire SHPS Human Resource Solutions (rationale is below)
• HR BPO, including the acquitisition of The RightThing in October 2011 (further details below).

I’ll finish my blog focusing on Benefits Administration and RPO.

The Workscape acquisition has proven to be a success, with ADP adding ~100 additional benefits clients annually. SHPS will further strengthen ADP’s benefits administration offering with capabilities including:

• Eligibility and enrollment
• Spending accounts administration
• COBRA administration
• Absence management
• Benefits advocacy.

SHPS will strengthen ADP’s leave administration and reimbursement account administration capabilities, including HSAs and HRAs, which have become increasingly important as more employers offer high deductible benefits plans to their employees. You can read about this in my recent blog.

The RightThing – coming off its best year in 2011 – was ranked by NelsonHall in its 2011 RPO report as the top U.S. RPO provider in terms of North American revenue, bringing in ~80 clients. Prior to the acquisition, ADP provided recruitment administration and technology, but it is now a full end-to-end RPO services provider. Expect an RPO contract announcement soon and much more to come as RPO will continue to be provided as a standalone service and now also in combination with ADP’s multi-process HRO services.

Gary Bragar, HRO Research Director, NelsonHall

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Playing the Hidden Object Game with HRO News

As one of NelsonHall’s research analysts, I follow what is happening in the various HRO markets. The simplest method is reading press releases, to which we add our commentary in our tracking service.  As a reader, you see a portion of this analysis in our HRO Insight Blog and HRO Insight Newsletter.

On my own time, I like to play basic computer and online games. One of my favorite types is hidden object games where you follow clues to solve puzzles. Occasionally, tracking press releases is a bit like a virtual scavenger hunt for the larger objective.

Let’s take a look at an example with Ceridian’s recent announcement of its acquisition of Versult Group, Inc. Versult Group is a workforce management consulting firm acquired to enhance Ceridian’s implementation, training, and support services for its InView Workforce Management (WFM) solution.  It is a straightforward article, easy to cover as is, and then I followed one clue to another and ended up with a richer story. HRO analyst fun!

Back in February 2011, Ceridian announced its partnership with Dayforce to launch InView.  The two partners began working together a year earlier to integrate Dayforce’s WFM software suite into Ceridian’s payroll and HR administration services and ready both teams for launch. Ceridian also made an equity investment in Dayforce, which had already raised $20m, including $10m from Bridgescale Partners in July 2010.

Versult was one of seven Dayforce implementation partners and Versult had already performed implementations with Ceridian. As a bonus to Versult’s experience with WFM system implementation, it brings its own mobile access application, Versobile, to Ceridian.

Ceridian intends to further develop this platform for its clients seeking SaaS-based HR services by integrating beyond the current HR administration and payroll services to create an end-to-end offering including: H&W, tax, pay cards, COBRA, recruiting, EAP, tuition reimbursement, performance management, and training.

The payoff so far is that Ceridian’s investments are seeing rapid initial client acceptance. The platform has already grown to 90 Ceridian customers, rapidly escalating from 20 in February 2011.

This is a good, well-thought-out strategic move for Ceridian. It gets to cost effectively expand its SaaS service portfolio, leverage the strengths of its current offerings, increase scope with its client base, and add an experienced implementation team. It also has an equity stake in WFM, an increasingly important service line given employer concerns with cost control and the capability for rapid and effective workforce scaling.

Let’s leave this chapter of the story with a puzzle. How long will Ceridian be satisfied with a partnership with Dayforce, the WFM software source, when it felt the need to acquire Versult, the implementer?

Now for HRO vendors large and small, how are you solving your piece of the HRO SaaS puzzle?

Linda Merritt, Research Director, HRO, NelsonHall