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Talent Management and Global Reach the Key Drivers for HRO M&A Activity: 2014 Review and 2015 Outlook

By Amy Gurchensky, Liz Rennie and Gary Bragar

With total HRO service growth in the high single digits in 2014, service providers are growing both organically and inorganically to meet clients’ needs. The primary reasons for M&A and partnerships across HRO service lines were to enhance service delivery capability (60%) and support geographic expansion (40%). Here we take a closer look at the specific drivers behind M&A and partnership activity in 2014 across all HRO service lines, identifying patterns and predicting the likely shape of M&A activity in 2015.

Payroll M&A driven by race for global coverage with current focus on completing Asia Pacific jigsaw

A key driver for payroll services is to achieve geographic expansion based on demand for multi-country capability. Indeed, once buyers have made the decision to outsource payroll it is one of the top vendor selection criteria.

In 2014, this led to a number of payroll providers undertaking step changes in their geographic coverage through acquisition, with the prime focus area for geographic expansion being Asia Pacific. Examples include:

  • Intuit acquiring U.K. based payroll aggregator Acrede for its ability to provide global payroll. Acrede processes payroll for employees in 30 countries, including Europe and Asia
  • TMF Group, who specialize in supporting companies’ corporate functions in emerging markets, acquiring Tass Axia to strengthen its payroll presence in Indonesia, while also acquiring KCS Ltd. to strengthen its outsourced business services offering (including payroll) across eight APAC countries, including China, Hong Kong, Australia,  and Singapore.

In 2015 we expect payroll M&A activity to increasingly include Latin America along with APAC. Some early signs of this were evident in 2014 with Netherlands-based Raet acquiring RH Pro, a LATAM based cloud payroll provider.

Benefits Administration M&A to focus on enhancing exchange offerings

In Benefits Administration, ~75% of M&A deals in 2014 were driven by a need to expand and enhance service delivery capability with a focus on exchanges, expansion of DB and DC offerings (including auto enrollment in DC), and pensions services in the U.K.

2014 M&A activity aimed at enhancing exchange capability included:

  • Mercer acquiring Transition Assist for its retiree exchange services
  • Aetna acquiring Bswift for its private and public health insurance exchange platform
  • Liazon, a Towers Watson company, partnered with Cigna and Assurant for its private exchange offering, Bright Choices Exchange.

Developing pensions capability continues to be important, with 2014 M&A and partnership activity including:

  • JLT acquiring Ensign Pensions Administration in the U.K., and establishing a partnership with NOW Pensions to facilitate auto-enrollment administration in the U.K.
  • Aon Hewitt partnering with Standard Life to add Standard Life’s auto-enrollment qualifying pension scheme, Good to Go, into Aon’s auto-enrollment platform, Littleblue, in the U.K.
  • Towers Watson partnered with Trianon to extend its pension administration and consulting services in Switzerland.

In 2015 we expect continued M&A and partnering for health exchange platforms, analytics and expanded wellness capability.

RPO M&A Activity Increasingly Focused on Major Asia Pacific Markets

In recruiting process outsourcing (RPO), ~80% of M&A deals in 2014 were driven by the need for geographic expansion in response to the demand for global RPO/MSP services.

In 2014, a number of the RPO acquisitions undertaken still represented a first step for U.S. RPO vendors in moving into Europe and beyond. These vendors frequently make their first international acquisitions in the U.K. as demonstrated by:

  • Seven Step RPO acquiring BlueGlue in the U.K.
  • WilsonHCG merging with CPH in the U.K. to combine WilsonHCG’s Americas expertise with CPH’s U.K. expertise and begin to support U.S. companies growing their U.K.-based presence.

Other RPO vendors were using acquisitions in 2014 to make major step changes in their presence and local footprint of recruiters in Asia Pacific with, for example:

  • Seaton Corp acquiring HRX in Australia to expand its presence in ANZ
  • Allegis and APAC RPO provider Talent2 formally completing their merger, to form Allegis Global Solutions. The companies had successfully partnered since 2010 under the allegistalent2 alliance, winning a number of global RPO contracts.

Asia Pacific will continue to be a major focus of RPO M&A activity in 2015 with M&A activity moving beyond the typical initial entry point of Australia to focus on key growth markets such as China. NelsonHall estimates that the Chinese RPO market will grow by ~20% over the next two years and already one vendor, Cielo, has announced its intention to acquire an RPO organization in China, with at least three potential targets in sight.

Learning M&A majors will focus on broadening talent management capabilities

2014 M&A activity in learning services was primarily to expand and deepen niche service delivery capability within specific sectors or in support of specific clients:

Examples of learning M&A and partnership activity in 2014 in support of this aim include:

  • GP Strategies and SafetySkills partnering to provide safety, environmental and HR courses to help companies meet their regulatory training requirements
  • Raytheon Professional Services (RPS) partnering with Universal Technical Institute to launch the First GM technician career training program.

Elsewhere there were hints of an emerging trend of learning services vendors broadening their capabilities beyond learning services to develop wider talent management portfolios incorporating areas such as leadership, onboarding and performance management. Here, GP Strategies’ acquired the Effective-People and Effective-Learning companies in Denmark to strengthen its HCM capability beyond learning. Effective-People and Effective-Learning offer HCM technology for recruiting, onboarding, compensation, succession planning, and HR analytics.

In 2015, while learning services vendors will continue to strengthen their industry-specific capabilities, we expect M&A and partnership activity to be increasingly driven by the need to support talent management. As reported in NelsonHall’s most recent learning BPO market analysis, linking learning with talent management in future was identified by buyers to be of high importance.

M&A activity in Multi-Process HRO to focus on acquisition of talent management technology

Almost by definition, MPHRO M&A activity is driven by the need to expand and enhance service delivery capability across HRO service lines. However, 2014 showed signs of M&A being driven specifically by the need to obtain or enhance talent management technology. For example, Aon Hewitt partnered with Cornerstone OnDemand to provide global deployment and administration services based on Cornerstone’s cloud-based talent management suite.

In 2015 we expect M&As and partnerships to be further driven by talent management technology, with the addition of analytics capability, as vendors increasingly look to combine and integrate these technologies within HRO services.

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