HRO Today Association
Questioning Consolidation A roundtable of experts discuss reasoning behind the recent M&A activity.
CONTRIBUTORS: Steve Riley Accenture
By The Editors What is driving the consolidation of services providers in the HRO marketplace? Is it demand? Maturity? Business and economic pressures? A recent meeting of HRO Today Services and Technology (then the HROA) board members sought to find out. The majority of members see the consolidation as a positive business initiative, allowing provider organisations to expand their scope and global footprint. Consolidation is often viewed as a strategy to satisfy a broadening demand from clients to meet complete geographical coverage and service areas that were previously seen as gaps. The market has also been driving the need for a completeness of multiple service offerings under one provider. More and more clients are looking to simplify governance arrangements by using only one service provider which allows a single point of accountability. Provider organisations are also playing a role by identifying process expertise in specific areas where they feel additional value can be created or gaps in their capability. Traditionally, providers partnered with other service providers to fill those said gaps; whether it was technology partners or niche providers (payroll for example). But consolidation allows fewer, but more powerful providers to be in a position of shifting the market in a specific direction to everyone’s benefit. As the procurement function has become more engaged and as the market has matured, transactional HR deals have become a commodity purchase with goals of reducing margins and size of deal. So the ability to capture a strategic role that delivers value is increasingly important. Many of the mergers and acquisitions (M&A) have had significant technology elements to them with
Darren Bartholomew Selex Galileo
a specific focus on integration. A major challenge in the industry to overcome is making integration more seamless and less painful. Software-as-aService (SaaS) and analytics technologies continue to have significant impact in the marketplace, and providers acquiring assets in these spaces are clearly signaling a shift into the higher-value HR areas.
Gary Madden BP Howard Nelson Northgate Arinso
In order for service providers to justify the investment in innovation and new capability, they have to show a greater share of the market to their investors. Inorganic growth is one way of achieving this in a recession when investors think about the return on their various investments and businesses and the risks associated with them. The slowed organic growth as a result of the recession may be an indirect influence on service providers to replace it with market share generated through acquisition.
Sally Hunter Kelly Services Seb O’Connell Randstad Sourceright Paul Mallinson Hays Margaret Spink Xchanging
What types of companies are targets for M&A? Providers who entered the market with specific service strength and have failed to expand and broaden their service base from their original, have become natural targets for acquisition.
Sarah Seabury ISG Phil Cooper Allegis Talent2
Buyers will also focus on the personality, cultures, and capability of the organisations merging. This is an important factor in buying behaviour. Shared culture is becoming more important in this space compared to purely transactional activities. For examples, buyers may consider if the provider shares the company’s values around people and talent development.
Tim Johnson ADP Roger Robbertz DSM Steve Walsh BAE Systems
This agenda is predicated on a new paradigm shift: From the old cost-to-serve model towards broader business outcomes and value gained from end-to-end integration across towers, customer centricity, analytical insights and real bottom-line growth.
WINTER 2014
Anthony Hesketh Lancaster University Management School
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