Hewitt Makes Another Outsourcing Move

May 5, 2003 (PLANSPONSOR.com) - Hewitt Associates took another step in building out its capabilities today, adding payroll services to its growing array of total benefits outsourcing (TBO) services.

The Lincolnshire, Illinois-based consultant didn’t have to go very far to find Cyborg Worldwide, Inc., the Chicago-based parent of Cyborg Systems, Inc., a provider of HR (human resource) management software and payroll services.   Hewitt, which began providing benefits outsourcing services in the early 1980s, expanded its offering last year to include HR business process outsourcing services.   Currently Hewitt provides outsourcing services to more than 200 companies and 14 million employees, according to the firm.

Cyborg provides services to more than 750 companies representing five million employees in 20 countries worldwide, according to a press release. Effective with the transition, Hewitt will assume responsibility for Cyborg’s staff of 300 employees.

A growing number of providers have stepped up their capabilities in the burgeoning filed of benefits or retirement services outsourcing.   And little wonder – HR and benefits outsourcing is expected to generate $58.5 billion by 2005, according to research firm Gartner Dataquest (see  Scale Shapes the Big “O” ).

A recent study of some 307 plan sponsors by PLANSPONSOR and MassMutual Retirement Services found that while ease of dealing with one provider was most frequently cited as the deciding factor in choosing a provider (27.1%), nearly a quarter (22.9%) cited cost savings, and just 14.6% cited expanded participant services.   Still, not only did the vast majority of survey respondents (86.6%) not currently have a total retirement outsourcing (TRO) arrangement, most of those (81.5%) said their organization hasn’t even considered TRO – at least not yet (see  TRO Brings Unexpected Benefits ).

Deal Details

Hewitt notes that Cyborg has annualized revenues of more than $40 million, while the purchase price will consist of approximately $43 million in cash, plus the potential for additional performance-related payments, according to the firms. The transaction is expected to close in June 2003. Hewitt anticipates the acquisition will be modestly dilutive through fiscal 2005, primarily due to the amortization of intangibles, and accretive thereafter.

“Adding payroll to our suite of services is a natural extension for our outsourcing business,” said Bryan Doyle, global business leader, HR and benefits outsourcing services, Hewitt Associates. “Payroll is a critical component of HR and our clients need someone with the ability to meet their complex payroll requirements. By capitalizing on Cyborg’s 30 years of payroll expertise, we can fulfill that need.”

Shopping Spree?

In recent months, Hewitt has been on a bit of a buying “binge,” having just weeks ago picked up the recordkeeping business of Atlanta-based Northern Trust Retirement Consulting (NTRC), including nearly 200 companies and more than 1 million participants (see  Hewitt Picks Up NTRC ).   Last December the firm added responsibility for 401(k) administration services for clients of Cleveland-based National City Corporation (see  Hewitt Takes Outsourcing to a New Level ).   After a period of relative quiet, consolidation seems to once again be afoot in the recordkeeping space, as evidenced by recent moves at Scudder/ADP (see  Scudder, ADP Join in New Recordkeeping Deal ), and Wachovia/PFPC (see  Wachovia Brings PFPC Recordkeeping and TPA Business On Board ).

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