Hewitt Absorbs Exult

Call it a merger, but the final result more closely resembles an acquisition.    Dale Gifford will serve as Chairman and CEO of the combined company, which will operate under the Hewitt Associates name, and remain headquartered in Lincolnshire, Illinois.   Hewitt’s board of directors will increase from 10 to 12 with the addition of two of Exult’s outside directors.   The combined firm will employ more than 18,000 workers.  

According to the firms, Exult’s operations will be merged into Hewitt’s existing HR outsourcing business, which will continue to be led by Hewitt’s outsourcing leader, Bryan Doyle. Exult’s founder and CEO Jim Madden will focus on integration and transition, and business development efforts for the combined company’s broader HR BPO business, while Kevin Campbell, Exult’s president and COO, will lead the broader BPO business within Hewitt’s HR outsourcing business.

In a conference call announcing the deal, Gifford noted that the firms had been in discussions for some time now, and that, since the firms currently share a number of relationships, they “know each other.”  

Combined Reach

The combined organization will serve more than 18 million employees from more than 300 companies with benefits outsourcing. In addition, it will serve more than 600,000 employees from 21 companies with broader HR outsourcing (16 with Exult, 5 with Hewitt), and more than 2,300 clients with HR consulting.    The transaction is subject to stockholder and regulatory approval, and is currently expected to close around the end of Hewitt’s fiscal year, September 30, 2004.   With the addition of Exult, Hewitt expects revenue to increase by approximately 35%, including more than 50% growth in outsourcing for fiscal 2005, relative to 2004 revenue.

Asked about integration plans, Hewitt said they didn’t see either platform being dominant going forward, though they acknowledged that they have similar portals that will be brought “together” over time.

For Hewitt, the move is the latest step in its build out of its HRO capabilities.    In mid-May, the consulting giant inked a 10-year deal with Capgemini Energy LP to provide HR operations, strategy, design and administration to TXU Corp for the Dallas-based energy firm's U.S. employees, while also picking up responsibility for approximately 150 TXU HR employees (see  Hewitt Inks HR BPO Deal With TXU ).

Irvine, California-based Exult, an early leader in the business process outsourcing (BPO) space, recently came out on the short end of a large contract, with the loss of its outsourcing deal with Bank of America in the wake of that institution's merger with Fleet.    The post-merger bank opted to sign a seven-year deal with Fidelity, which had been the HRO provider for Fleet (see  HR Outsourcing Deal May Signal New Era ).  

Deal Impact

In terms of the deals impact, Hewitt says that the combination will yield $25 million in cost synergy savings in fiscal 2005, and $30 million the year after that.   Those savings are expected to come in three major areas, according to Gifford:

• Operating and service center proximity
• Product strategy/IT infrastructure, leveraging both size and scale
• Elimination of duplicate functions

Hewitt expects net revenues to increase 10-11% from fiscal 2003 revenues of $2.0 billion.   Hewitt says it anticipates forecast growth of:

• 10-12% in Outsourcing (from $1.2 billion in fiscal 2003)
• 4-8% in Consulting (from $734 million in fiscal 2003)

In a conference call outlining the deal, Hewitt executives cited Exult's client base and workforce management expertise (particularly in areas such as recruiting and learning development), as well as BPO technology that allows clients to be brought onto the platform(s) sooner.  Hewitt's benefits consulting and payroll expertise were cited as enhancements to the Exult side of the transaction.