WHEELING & DEALING
Why Should You Care?
By Jean-Marc Levy

First published in HRO Today (October 2002)
 

By highlighting notable outsourcing transactions and key players, this column will spot trends and identify opportunities.

Why should HR outsourcing professionals be interested in mergers and acquisitions activity or in the wheeling and dealings of venture capital funds? The answer lies in one word: change.

This issue of HRO Today that you are reading is about change: change in the professional employer organization (PEO) industry, one of the key drivers of the evolution and transformation of The ProEmp Journal into HRO Today; change in the HR outsourcing industry, as facilitated and accelerated by the dramatic technological advances of the past decade; and change in the way organizations manage their businesses for peak performance, leading many of them to embrace outsourcing solutions in order to focus on their core strategic competencies.

A very active level of deal and investment activity by corporate acquirers, private equity investors, and venture capitalists often characterizes rapidly changing industries. In emerging industries, waves of seed investments in promising products, services, and technologies alternate with cycles of Darwinian consolidation. In the HR outsourcing industry, for example, the past three or four years alone have seen a company like Exult be incubated with venture capital funding in 1998 and quickly become an industry-leading presence, while several hundred weaker PEOs disappeared, through a wave of consolidation that left the PEO sector profoundly and permanently changed.

Which brings me back to my initial question: Why should you care? Well, as an HR professional or as a business leader, you should care immensely about change that can affect the way you conduct your daily business and deliver the best products or services to your customers in the most effective way. In the coming months, my hope is that this column, by highlighting notable transactions and key deal-makers in the world of HR outsourcing, will allow you to spot key trends in your changing industries, learn about innovative new products and services being developed, and identify potential strategic outsourcing partners and vendors.
 

NOTABLE TRANSACTIONS

Earlier this year, in an environment of stock price meltdowns and failed IPOs, Hewitt Associates, the provider of HR consulting and outsourcing services, successfully completed its highly anticipated $200 million public offering, a milestone in the HR services and outsourcing industry. Hewitt Associates was founded 60 years ago as an insurance brokerage business catering to the financial planning needs of well-compensated executives and professionals. Hewitt has since demonstrated a remarkable capacity to build on this foundation and to develop innovative products and services that have redefined the role of the corporate HR department.

With 13,000 employees and over $1.6 billion in annual revenue, Hewitt now provides a broad range of HR-related services spanning the employee lifecycle, and ranging from general HR strategy to technology and health-care advisory services, retirement and financial management services, and HR and benefits outsourcing services. Since its 1991 pioneering introduction of TBA (Total Benefits Administration), one of the first technology platforms for delivering a broad range of employee benefits services, Hewitt's HR outsourcing business has grown at double-digit rates and now generates close to two-thirds of Hewitt's total revenues. During the most recent benefits-enrollment period, Hewitt served more than 6 million employees and their dependents through its online enrollment tools.
 

DEAL-MAKER OF THE MONTH

General Atlantic Partners (GA) was one of the earliest VCs to invest in the HR outsourcing sector. The large global investor, with approximately $4 billion in committed capital, describes its sectors of focus as information technology, communications, and process outsourcing. While no specific mention of HR outsourcing is made, a quick scan of GA's portfolio reveals a deliberate affinity for HR outsourcing investments.

Over time, in addition to incubating Exult, GA has made sizable investments in companies targeting different segments of the employee lifecycle. They include LifeCare, a provider of employee assistance programs, ProPay, a provider of employee administration services, and payroll and benefits administration outsourcers ProBusiness and RebusHR. Most recently, GA invested $10 million in SmartTime, a provider of time & attendance and scheduling solutions, and plowed an additional $15 million into HealthMarket, a provider of self-directed health plans.