Article: Blackstone acquires Aon's HR BPO platform for $4.8 billion

HR Consulting

Blackstone acquires Aon's HR BPO platform for $4.8 billion

The total number of acquisition in the HRO space has been steadily increasing with 25 in 2014 and 30 in 2015. As the market matures and grows, one can expect to see further merger & acquisition activity.
Blackstone acquires Aon's HR BPO platform for $4.8 billion

The dust has not yet settled on the news that India based PE fund Multiples is looking to acquire close to 80% in PeopleStrong – an HR Outsourcing service provider, we hear even bigger news. Blackstone one of the world’s largest investment firms, announced its acquisition of Aon’s technology enabled benefits and HR platform. 

Blackstone has USD 367 billion worth of assets under management and through its 30 years of existence today has offices in 20 global locations employing more than 2200 people. Its portfolio companies together employ 514,000 people worldwide. 

What is Sold & what’s retained

So before we look at potential reasons for this buy decision, let’s first look at what did Blackstone buy as part of this deal. Aon will part with its benefits administration, HRO administration, and cloud services business as part of this deal. The cloud services business was created by acquisition of Workday systems integration and application management service providers OmniPort and Kloud. This business has currently USD 2.3 billion in revenues with 22,000 employees working in 14 different global locations. As per the 2016 financial report of AON, this business has seen a 4% growth over last year. Aon will retain its benefits and talent consulting business thus sharpening their focus on delivering advisory and solutions related to risk, retirement and health enabled by proprietary data & analytics. 

Why AON sold?

This deal is part of Aon’s focus on delivering advice and solutions while accelerating innovation on behalf of clients and improve return on invested capital. Aon has been building and strengthening capabilities via acquisitions like Storz Friedberg and Admix while also investing USD 350 million in building proprietary data and analytics. Christa Davis, CFO & Executive Vice President AON, while answering an analyst question said “We are divesting a lower revenue growth, lower margin business, and therefore you can expect return on capital to continue to increase. We believe Aon post this transaction will be higher revenue growth, higher margin, and a higher return on capital with higher free cash flow growth.”

Why BlackStone Bought?

What Blackstone has bought from AON is number one in the large enterprise market for health and welfare and defined benefits administration, and in the top three for defined contribution. The new entity will continue to have the greatest market share and experience delivering HRO services on Workday while looking to expand its SAP SuccessFactors HRO client base. Blackstone will look to leverage this market leading business to create new service offerings. It is known for investing in growth opportunities for its holding companies. Some of the anticipated opportunities are extending Workday delivery capabilities to include Finance & accounting services while also looking to target the 401(K) plans. Aon Hewitt primarily caters to large defined contribution (DC) plans with average size of the roughly 450 plans under its administration being greater than USD 800 Million. This could prove to be a great untapped opportunity via this acquisition. 

What this means for the HRO Industry?

The total number of acquisition in the HRO space has been steadily increasing with 25 in 2014 and 30 in 2015. As the market matures and grows, one can expect to see further merger & acquisition activity. The HRO space is evolving via various business models and consolidation is going to continue.Earlier Everston acquired AON Hewitt’s APAC payroll business and rebranded it as Excelity Global. Everstone is believed to be investing in Excelity’s Hire-to-Retire HCM platform, while also enhancing its service offerings and expanding its geographic footprint over the next 2-3 years. In Indian context, we have seen RPO players like Teamlease go the IPO route while players like Quess are looking to expand their offerings in the Indian market. We have already mentioned about the potential buyout of Multi Process HRO (MPHRO) player PeopleStrong by PE fund Multiples. 

Such activities typically allow the entities to accelerate the pace of innovation and invest in their core capabilities, so its always a good news for the buyers. While in the short run their might be some anxieties internal to the service provider which may cause some buyers, especially the ones evaluating their service providers, to reconsider. However given this pace of M&A activity in this market, irrespective of the player you sign up with it would be a good idea to have a clause in your contract which clarifies terms in case of a merger or buyout. Such investments by large PE firms should also act as a shot in the arm for HR entrepreneurs who are looking to create scalable organizations using technology platforms. 

While we will wait & see how this unfolds, one can remember these lines from an HBR article published in 2007 – The strategic secret of private equity by Felix Barber and Michael Goold – “If a public company needs to be taken private to improve its performance, the necessary changes are likely to test a private equity firm’s implementation skills far more than the acquisition of a business unit would.” 

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Topics: HR Consulting, #MergersAndAcquisitions

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