Last week, I discussed the Booz & Co./A.T. Kearney merger that didn’t go through and why deals like that are sometimes problematic. This week, we learn that Hewitt is being acquired for $4.9 billion by AON.
The Wall Street Journal reports that:
– Deloitte LLP is looking for acquisitions
– PriceWaterhouseCoopers LLP is in talks to buy Diamond Management & Technology Consultants Inc. for about $50 million.
The Wall Street Journal also hinted that other firms may be in play to either acquire or be acquired.
Why the sudden interest in wedding bells for these firms? The answer may simply be: scale.
In the outsourcing business, margins are narrow. Anytime you can grow the top line without measurably increasing administrative, sales or operations headcount, you improve profitability. Remember, Hewitt bought Exult, an HRO firm, a few years back. Convergys sold their HRO operation to Northgate Arinso recently. Scale is key in HRO. Scale is also helped along when an outsourcer can get all of its clients on the same solution set.
Scale also helps consultancies. Scale gives them worldwide coverage particularly in markets where one firm was thin or non-existent. It can also help them by allowing them to capture more market share with fewer top executives. That alone can increase bottom line profits overall and partner income.
A colleague of mine, Jeffrey L. Williams, and I were speaking of the market for shared services just a couple of weeks ago. We discussed how corporations built out internal shared service capabilities in the 1990s. He called that Shared Services version 1.0. Next, a number of these companies sold these captive operations to outsourcers. I call that Shared Services version 2.0. That phenomena helped the customers take advantage of the scale that outsourcers could get by aggregating the shared processes and systems across many firms. Now, we may be seeing a new version or evolution level occurring. The new level, consolidated outsourcing, hopes to chase the economies of scale further by creating larger, more leveraged solutions from these outsourcers…