Hewitt, Exult Shareholders Make it Official

October 4, 2004 (PLANSPONSOR.com) - Mergers are typically times of great uncertainty for employees and customers alike, at least until the "dust" settles - but the recently consummated merger of Hewitt Associates and Exult appears to be something of an exception to that "rule."

Shareholders of both organizations approved the deal last Thursday.   The combined organization, known as Hewitt Associates, Inc., will have a market share greater than 30% in the Human Resources Business Process Outsourcing (HR BPO) market, according to data from Everest Partners, LP, (based on total contract value for the indicated contract term) and Gildner & Associates, Inc. (based on number of clients with more than 10,000 employees).   And it’s a growing market, according to market researcher NelsonHall, which recently said the worldwide multi-process HR BPO market will grow at a 21% annual clip, and could reach $7 billion by 2008 (see  Multi-Process Services to Rule the BPO Roost ).

Getting Ready

Indeed, Bryan Doyle, head of the newly combined HRO business at Hewitt (and previously head of the HRO effort at the “old” Hewitt Associates), told PLANSPONSOR last week that the firms spent all summer getting ready for the merger and, from the sound of it, a lot of time making joint calls on plan sponsors.   The firm already serves more than 18 million employees from more than 300 companies with benefits outsourcing, but now covers 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 (see  Hewitt Absorbs Exult ).   Discussions with plan sponsors have a different emphasis now, according to Doyle, who says that these discussions are not so much an education about HRO, but more about a commitment to the HRO business.   Doyle says plan sponsors have been receptive to the merger message, with at least one going so far as to respond, “Now we know you’re serious about HR BPO.”

The merger does seem to work to the advantage of both firms, bringing together the BPO experience (they pioneered the concept working with British Petroleum in 1999) and client base of Exult with the financial wherewithal, name brand recognition, and current, but non-HR BPO, client base of Lincolnshire, Illinois-based Hewitt.   While the impact of the actual implementation of the merger on plan sponsor clients has yet to be told, at present it sounds as though it could be a non-event, with both systems and customer service personnel remaining in place, at least for the present.  

That may help explain why the firms have not only continued to retain, but have actually signed and/or expanded, customer HR BPO agreements over the past couple of months.   Last month, Exult set a projected signing date for its contract to provide integrated human resources processing services for Air and signed non-binding letters of intent with Warner Music Group in the US and Grupo Semco in .   In fact, Exult's founder and CEO Jim Madden, who will now focus on business development efforts for the combined company's broader HR BPO business, notes that for many customers the merger with Hewitt made it "safer" to make the decision to stay with Exult.  

Doyle noted at least one bidding situation where neither Hewitt nor Exult had made the final cut, but was asked to rebid when the merger was announced (the combined firm has made it to the finals, but the decision is still pending according to Doyle).   Both Madden and Doyle said there was "a lot of activity" in their pipeline.

Other developments seem likely to accelerate the trend toward HR BPO as well, including Friday's surprise announcement of the dismissal of PeopleSoft President and CEO Craig Conway - and its potential implications for the hostile takeover bid of the firm by rival Oracle (see  Takeover Target PeopleSoft Announces Exec Reshuffle ).   If Oracle is successful - its attempt has been rebuffed a dozen times to date, and very few PeopleSoft shareholders have tendered their stock, despite an offering price above PeopleSoft's current trading price - the impact on PeopleSoft, and the software that many HR departments use in administering their human resource functions, is unknown.   That uncertainty - or a negative "certainty" once the issue is resolved - could accelerate an interest by HR managers in hiring out that support to HR BPO firms, rather than dealing with the risks, costs, and support requirements of running such software inhouse, according to Doyle.  

For the moment, while plan sponsors may be leaning toward the selection of a more comprehensive HR support model, they still seem more likely to move gradually to an "a la carte" approach.   The good news for plan sponsors is as HR BPO capabilities expand, they seem to be able to have it both ways.