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Facts & Implications of Aon Hewitt’s Sale to Blackstone

Last week Aon Hewitt announced that it has signed a definitive agreement to sell nearly all the businesses within its Outsourcing segment (including benefits administration, HR BPO, and Workday cloud HR services) to Blackstone. Initially, it may appear that this is a step backwards from some of its prior acquisitions, including Hewitt in 2010 for benefits administration, Exult in 2004 for HR BPO, and OmniPoint in 2012 for Workday services. However, the separation will be highly beneficial as the new entity will be a pure play, focusing on operational HR administration activities.

There are a few nuisances with the sale, since some benefits businesses will be retained by Aon Hewitt, including DBCalc and its private exchange for active employees and retirees. The key with both of these offerings is their tight integration with businesses in Aon Hewitt’s Consulting segment. For example, DBCalc is typically bundled with actuarial services.

The private exchange business, on the other hand, will essentially straddle both organizations, with Aon Hewitt retaining the front-end architecture and design and associated work around procuring carriers, plan details, brokering, etc., and Blackstone taking over the back-end administration, technology, and call center support services.

In addition, some U.K. and Canadian benefits administration businesses will be retained by Aon Hewitt; like DBCalc, these businesses are tightly integrated with consulting services, and make up a small portion of the overall portfolio. 

Although not technically operating under the Outsourcing segment, it’s worth noting that Aon’s global benefits business, including brokerage and consulting services, will not be part of the sale.

With the remaining Aon Hewitt focusing on advisory services, the two companies will continue to have a working relationship, especially with respect to the large market, but there will not be an exclusive partnership in place. 

More importantly, the separation will allow each entity to make targeted investments in their core capabilities, resulting in faster innovation overall. In the short-term, the roadmap for each business being sold will remain intact; for example, the current emphasis of benefits administration is on improving the participant experience, which includes combining health and wealth together, as well as driving self-service and enhancing the customer experience. With respect to the Workday business, the key objective is to provide a flexible and modular offering around Workday HCM and Workday Financial Management.

From Blackstone’s perspective, acquiring Aon Hewitt’s Workday business diversifies its HCM technology holdings, following its minority investment in Kronos in 2014.

The deal, for a cash consideration of $4.3bn at closing and additional consideration of up to $500m based on future performance, is scheduled to close in 60 days, with a new company name to follow.

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