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