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WHEELING
& DEALING
A Buyer For Every Seller?
By Jean-Marc Levy
First published in
HRO Today (December 2002)
Despite the worst business climate in years
for venture capital and M&A, the HR Outsourcing sector remains
relatively healthy.
Let’s face it. People who make a living by wheeling and dealing will
remember 2002 as one of the bleakest years on record in the world of
deal-making.
Venture capital funding has plummeted to levels not seen in years.
According to the
National Venture Capital Association,
venture capital financings in the third quarter of 2002 were down 26%
from the second quarter, and down 65% from the third quarter of 2001.
According to the NVCA, if the current trend continues, the industry will
end 2002 at levels unseen since 1998.
In the world of Mergers & Acquisitions, the outlook isn’t any rosier.
According to
MergerStat, for the first six
months of 2002, aggregate M&A deal value stalled out at levels unseen
for the broad M&A market since 1996.
What’s a deal-maker to do? Well, for one thing, they can ask themselves
if they operate in the right industry. Deal-making in the HR Outsourcing
industry, and more generally in the Human Capital Management (HCM)
sector continue to be relatively healthy. While the overall level of
activity is not as buoyant as in prior years, there is typically a buyer
to be found for most sellers of HCM businesses.
The drivers of this activity are not surprising. HCM is still a very
young industry. As discussed in earlier columns and through many
sections of this magazine, large providers of HR Outsourcing services
are trying to extend their reach into the middle-market business space
by broadening the range of services they offer while smaller providers
are trying to gain the scale and critical mass they need to break into
the Fortune 1000 segment. The right merger or acquisition partner can
accelerate either strategy dramatically. Another driver is the continued
trend towards specialization for HCM companies as industry focus or
specialization in a specific service or process area continue to be
important differentiators. The right acquisition can save the buyer
years of critical internal development time.
These drivers are neither short-lived nor temporary, and we continue to
expect the overall deal-making environment for Human Capital businesses
to continue to be more active than the broader M&A sector.
DEAL-MAKER
OF THE MONTH
Our deal-maker of the month is neither a
major private equity player nor a mega-VC.
Clark/Bardes
Consulting (Ticker: CBC), founded in 1967 by benefits
specialists Robert Clarke and David Bardes, has grown to become one of
the largest providers of compensation, benefits, and organizational
consulting in the U.S. With $230 million in 2001 revenue and serving
close to 4,000 organizations in three major practices (corporate,
banking, and healthcare), Clark/Bardes offers a broad range of services
including compensation consulting, executive and director benefit
planning, ownership and succession planning, insurance brokerage
services, and physician practice management services – just to name a
few.
In order to offer this broad range of services, Clark/Bardes has been a
very acquisitive business. The company has acquired close to twenty
businesses since 1998. Some of these notable acquisitions include
MCG/Healthcare, the largest benefits consulting
organization serving the healthcare industry in 1999,
Pearl Meyer &
Partners, one of the largest executive compensation
consulting firms in 2000, and Compensation
Resource Group, a leading provider
of design, implementation, and administration services for nonqualified
executive benefit plans in 2000.
Most recently, in September 2002, Clark/Bardes continued to fill its
shopping cart with its largest acquisition todate, and announced a deal
to purchase insurance broker
Long
Miller & Associates for $405 million in cash and
stock. While the transaction had not formally closed as of this writing,
the combination with its main competitor in the business-owned life
insurance market, would make Clark/Bardes the undisputed market leader
in this lucrative segment.
Pay attention. If past behavior is a good predictor of future activity,
Clark/Bardes shopping cart should continue to fill up over the next
several months.
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