Two HRO vendors dip their toes into the RPO pond.
By Gary Bragar
In my July/August column (RPO Boom), I wrote about the significant revenue growth increases by RPO providers in the first half of 2011. Well that growth continues and for the second half of the year, RPO is again expected to have the highest growth of all HR outsourcing services, as evidenced by NelsonHall’s recent quarterly HR Outsourcing Confidence Index from October 2011. This more than 50 percent year-over-year RPO revenue growth achieved by several providers has not gone unnoticed, including by two significant HRO vendors, Randstad and ADP. Both companies have made the biggest acquisitions of RPO providers to date, each in the second half of 2011, just three months apart.
On July 20, 2011, Netherlands-based Randstad announced its acquisition of SFN Group, including RPO specialist SourceRight Solutions. The acquisition was completed in September. Randstad, with full year 2010 revenues of €14,179 million, were 80 percent in Europe and 13 percent North America, equating to $2.6 billion North America. SFN Group brought $2,053 million in 2010 revenues, for combined revenues of €17 billion (pro forma as of March 31, 2011) $22 billion and $4.6 billion in North America from the following service segments:
• 52 percent staffing
• 39 percent professionals
• 9 percent HR services including payroll, managed services, and RPO
On October 10, 2011, ADP announced its acquisition of RPO specialist The RightThing. With ADP fiscal year 2011 revenues, ending June 30th of $9,879.5 million, the combined company has an estimated $10 billion in revenue.
Before we get into the specifics and the value that each acquired company brings, let’s step back and take a look at the three top reasons for vendor mergers and acquisitions in HRO:
1. A major provider acquiring another leading vendor to enhance its position. Examples include ACS, a Xerox Company, acquiring ExcellerateHRO or Aon acquiring Hewitt.
2. Expanding a vendor’s HRO portfolio. Examples include, Kenexa acquiring salary.com to strengthen its compensation management capability and ADP acquiring The RightThing to add RPO.
3. Acquiring geographic capability to enter new markets. Examples include NorthgateArinso acquiring Convergys to expand its presence in North America and Randstad acquiring SFN, to establish a leadership position in RPO in North America.
At a macro RPO level, according to NelsonHall’s 2011 RPO Market Analysis Report, both The RightThing and SourceRight Solutions are among the top three vendors in North America RPO revenue and among the top leaders globally in:
• The ability to improve candidate experience; and
• The ability to provide full end-to-end RPO services, including internal mobility, employer branding, employee engagement, and retention.
In the case of Randstad, who before acquiring SFN had just recently entered the RPO market, it joins other major staffing providers including Alexander Mann Solutions, Allegis Group Services, Adecco, Hays, Kelly Services, and Manpower in moving up the value chain over the last several years to expand into RPO. SourceRight further ascends Randstad up the talent acquisition value chain with both RPO and blended RPO solutions that include managed service programs (MSP) and contingent workforce solutions. SourceRight, having serviced primarily the North American market, will now have access to global RPO opportunities.
ADP not only gets an RPO specialist to provide standalone RPO services but now adds RPO to its multi-process HRO (MPHRO) offering. Already the global leader in payroll outsourcing, ADP had been expanding its MPHRO capability, including its acquisition of Workscape in July 2010 for benefits administration, compensation, and talent management services. According to NelsonHall’s 2011 Payroll Market Analysis and MPHRO Market Analysis, ADP is the number one provider in terms of payroll services revenue globally and the number 5 MPHRO provider in terms of global revenue. ADP is the first MPHRO provider to acquire an RPO specialist. The RightThing opens up new opportunities as 50 percent of all MPHRO contracts awarded during the last two years have included recruitment. With ADP’s global client base, access to RPO opportunities across continents becomes available, in addition to increased mid-market access.
Though it may not have been explicitly stated as a benefit in the announcement, as Randstad provides HR and payroll services in Europe, Randstad could now offer MPHRO services as well and become an immediate MPHRO competitor in Europe.
Both companies also move up the talent management value chain as SourceRight Solutions and The RightThing have not only been focused on talent acquisition, but also the richer value-added services of RPO in helping their clients to engage and retain talent. Randstad and ADP will be able to cross sell services to existing clients as well.
I believe both ADP and Randstad, along with its existing and prospective clients, will benefit significantly from these two RPO specialist acquisitions.
Gary Bragar is the HRO research director at NelsonHall and can be reached at firstname.lastname@example.org