Moorepay and NGA get even more SaaSy in the U.K.

The one question that I always have after acquisitions is, “How does it work out over time?” Some M&As put emphasis on “synergy” (i.e., consolidation and cost recovery). Others focus on skills and footprint in new geographies. NorthgateArinso (NGA) is one of the HRO service providers that use acquisitions in new markets as one type of growth strategies. Moorepay is a payroll and employment service provider in the U.K. with over 10,000 clients and it is one of those NGA acquisitions.

Growth through accretion of revenues and clients in new geographies – along with the access to in-country knowledge to service MNC clients – is a good rationale for M&A. But does the overall vendor system become stronger? Are new capabilities leveraged across opportunity areas? I have lived the life of trying to create change, fighting against the not-invented-here syndrome in the corporate world. This is one of the more subtle reasons for using HRO—to circumvent this internal tug of war.

Now back to Moorepay and NGA. Moorepay just released its newest service on March 12th, a SaaS HR and payroll platform that it will use for the small-employer market. I asked if the underlying technology was based on SAP or Oracle. The answer is “neither”; it is based on Preceda, a proprietary NGA system stemming from the 2010 acquisition of Neller in Australia. Preceda is already in use for ~4,000 clients and 500,000 participants in Australia, Philippines, and New Zealand, and now it is expanding to the U.K. Yeah, synergy, re-use, and leverage to improve capabilities and services for the underserved small-business market halfway around the world!

HRO SaaS is a proven cost-effective alternative to fully customized systems. Its very nature lends itself to offering needed benefits to the small and midsized employers (SME). SaaS brings the illusion of customization through configuration at an affordable cost. These are important attributes, especially important for the employer with less than 500 employees.

Moorepay is fully using the benefit of configuration to launch the new service with four pricing levels from the most basic HR and payroll that gives the option to easily turn on additional services like time and attendance, recruiting, and learning modules.

HR and payroll platforms also bring self-service for employees and streamlined HR processing for managers. According to Ann Fitzpatrick, Moorepay managing director, existing and prospective SME clients are asking for the same level of services that have been in the market for years for the large-employer market.

If the launch goes well, and Moorepay turns the rising demand and its first-mover advantage in the U.K. SME market into new and profitable growth, expect to see new NGA Preceda-based SaaS HRO offerings pop up elsewhere around the world.

Linda Merritt, Research Analyst, HRO, NelsonHall

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Anatomy of the Deal – Managing the HRO Service Provider Portfolio

A sign of economic recovery is preparation for the future and a return to investing in growth and expansion over cost cutting and containment. A purchase may be the fastest way to growth for HRO service providers, if the price is right and the risks manageable. And the first half of 2010 has been busier with large and small mergers and acquisitions in the HRO universe than with major new client deals. 

Today let’s take a look at the similar strategic criteria I see that cross several recent HRO acquisitions: footprint, portfolio, profile, talent and technology.

Footprint – expand into new geographies by buying an established “local” player. NorthgateArinso just closed on its purchase of Convergys, greatly expanding its footprint in the U.S., the world’s largest HRO market. It also purchased Neller, an Australian-based payroll provider to increase its global payroll coverage in the Asia Pacific region.

Portfolio – what services should you offer? Acquisition for portfolio management is seen as part of the ACS purchase of ExcellerateHRO (EHRO) from Hewlett Packard. According to ACS Managing Director Rohail Kahn, ACS intends to be a top industry leader in each of its lines of businesses. ACS will add to its heft as a benefits administrative player with the addition of EHRO, which was a strong benefits admin provider going back to its start with Towers Perrin.

Rounding out a service line is also a reason cited in recent acquisitions. Hewitt’s purchase of HRAdvance adds strength to its growing dependant audit services as part of its point solution offerings within its larger benefits admin portfolio.

Profile –marquee “logos” and major clients adds scale and is a common reason for M&A activity, but it is one that requires a clear head and due diligence. Last year Empyrean Benefits announced it was going to acquire the benefits unit of ING. A few months later the deal fell apart when it became clear to Empyrean that several major clients were already on the way out the door. The closing of the Convergys deal is a sign that NorthgateArinso felt a good sense of security that enough of the major clients will stay and give NorthgateArinso a chance. ACS also mentioned a stable client base as one of the advantages of the EHRO deal.

Talent and Technology – both can be an important consideration in purchase decisions. Praise for the leadership and talent base of the acquired company is practically a requirement in the M&A communications handbook. It is another thing to determine if it is true in action as well as words. Another common reason for M&A’s is synergy, i.e., reducing operating expenses by eliminating duplication and overlaps.

Technology can be the point of, or a problem rather than a benefit, in some M&A’s. In the case of Hewitt, it will adopt HRAdvance’s technology platform, which was a criteria it was seeking in an acquisition. 

More often, that which cannot be profitably and practically integrated must be separately maintained or clients migrated. Either way, the time, cost and effort must be factored into the financials and risk management of the deal.

2010’s HRO service provider deals have good bones and clear intentions, may they all grow hale and hearty for themselves and their clients!

Linda Merritt, Research Director, HRO, NelsonHall

HRO Provider Acquisitions on the Rise

Just five weeks into 2010 and seven HRO provider acquisitions have already been announced or closed! Two were in staffing services, two in payroll, two in learning and one in relocation, so a nice mix across HRO processes. But at a rate that comes out to more than one per week thus far in 2010, why are we seeing this level of acquisition activity? I attribute it to any combination of five things HRO providers are trying to achieve:

• Strengthen their service offerings

• Enter/expand into new industries, market sizes and geographies

• Improve their technology/technological platforms and capabilities

• Obtain new clients

• Improve their financial results through revenue growth and cost savings due to synergies

Let’s take a quick look at three acquisition announcements/closings that happened just this week which support my above assertions:

Manpower is acquiring COMSYS to strengthen its IT staffing capablities, which is COMSYS’ predominant business and will bring Manpower $650 million in revenue. Additionally, COMSYS’ RPO division, TAPFIN, which focuses on the mid-market, will help strengthen Manpower’s RPO business in the U.S.

NorthgateArinso acquired Neller Payroll in Australia to support its growth strategy in Australasia. The acquisition includes Neller’s Preceda OnDemand SaaS payroll solution and the Neller Employer Services (NES) subsidiary which provides outsourced payroll services. Neller’s more than 1,000 clients will also add significantly to NorthgateArinso’s existing Asia Pacific client base.

Spherion acquired Tatum to strengthen CFO executive staffing services, increasing Spherion’s higher margin professional services business. Spherion anticipates approximately $6 million cost savings in synergies.

So what does this level of acquisition activity signal for the HRO industry and the remainder of 2010?  You got it…more acquisitions driven by:

• Increased demand for multi-country/global payroll, RPO and other services as buyer organizations continue to seek to reduce the number of vendors they work with and standardize procesess and technology

• The need to better service exisiting clients and obtain new clients, with the end result of better financial performance

Even when the economy recovers, I belive M&A activity will continue to occur, as it did before the recession, as that is the nature of all business – to continually try and better service customers and improve financial performance.

Gary Bragar, Lead HRO Analyst, NelsonHall