After more than a decade of speculation about the future for U.K.-based HR provider NGA Human Resources, acquisition by U.S.-based HR provider Alight Solutions is imminent sometime this fall. The pairing of these two HR outsourcing titans has immediate potential to strengthen HR, payroll and benefits delivery capabilities across the Americas and Europe. Each of these former competitors has run a marathon of organizational and capital changes over the years. As they now race to the finish line, it seems like a good time to reflect on the synergies and pitfalls they face as they become one company.
Above all, the combined forces of these two HR titans form a complementary service offering that will bring welcome value to HR buyers and create tremendous potential beyond the sum of their current operations. Below are some positive outcomes of this market pairing:
- Extended geographical reach. Alight has been a clear market leader with 10,000+ employees and 19 delivery centers across North America and APAC. NGA HR is strongest in Europe where the demand for HR and payroll solutions requires a greater presence supported by more than 4,500 NGA employees spanning 35 countries and 25 languages. More than 80 percent of NGA employees sit in Europe. The service center locations of the two companies are complementary as well, with Alight having a dominant North America presence through its hubs in areas like Chicago, Charlotte, Houston, Orlando and Toronto and very little support in NGA’s Jacksonville location, as many clients have slowly moved work offshore. Instead, NGA brings bench strength from its hubs in Grenada, Spain; Birmingham, U.K.; and Kotwice, Poland; which is about an hour drive from Alight’s European center in Krakow. Alight can look forward to gaining NGA beachheads in Brazil, Argentina, China, and a sizeable Manila service center. Combined coverage in India will be a mix of NGA’s Hyderabad and Kochi locations with Alight’s India-based back office now owned and run by Wipro. Japan and countries in the Middle East and Africa remain as opportunities for further development in rounding out global coverage.
- Increased HR platform functionality. While HR providers have long aspired to be platform agnostic, the truth is they tend to develop proven success with some technologies more than others. Alight quickly embraced U.S. market darling Workday and expanded rapidly by acquiring boutique systems integrators first in the U.S. (Omnipoint), then in Europe (Kloud) and finally in APAC (Wipro/Appirio). Despite winning a monumental deal in 2005 with PepsiCo as an early adopter of SAP Employee Central cloud platform, Alight struggled to grow its portfolio of SAP clients. In contrast, NGA HR has been closely aligned to SAP since its 2004 BPO partnership with ARINSO, which included the launch of euHReka, NGA’s long-standing multi-country payroll platform developed in SAP. NGA’s Digital HR offerings focus on systems implementation, AMS support, and now XtendHR custom apps and accelerators for SAP. Though NGA excels in a market in which most SAP deployment partners lack HR expertise and focus on broader ERP modules, the company has struggled to convert one-time client wins to longer-term recurring HR revenue streams.
- Aggregated payroll expertise. Alight’s portfolio of large HRO clients is almost 90 strong, more than eighty percent of which are adding payroll to their scope of outsourced services. Alight is one of the few providers in the market that will support stand-alone Workday payroll, a must for buyers that do not want to repatriate payroll as part of their move to the cloud. Heritage payroll providers like ADP and Ceridian will not deliver payroll using a client’s Workday or other cloud platform, and the lack of a payroll platform containing pay rules, tax tables and local regulations has long been a barrier to entry for competition. NGA’s roots are in heritage payroll, and the company evolved quickly to be one of the strongest competitors to ADP for multi-country payroll in Europe. Filling global customers’ growing appetite to outsource payroll is an opportunity that promises great rewards if Alight can sort through the mix of technologies and bring operational credibility and automation to HR-payroll buyers.
- Extended partnership ecosystem. Hybrid delivery is the name of the game in human resources, where best of breed applications, integrated HR suites, and third-party providers create an infinite mix of solutions. NGA relationships beyond SAP that may be of interest to Alight include cloud-based learning software provider Cornerstone OnDemand (CSOD); PeopleDoc document management suite now owned by Ultimate Software; and workforce management software Kronos, which is compelling to payroll clients that need a robust and global timekeeping solution. Alight’s 2018-2019 shuffle of business partnerships, sales and acquisitions with Wipro is the most interesting partnership to consider, with Wipro owning and providing Alight back-office operations as well as all non-Workday/CSOD systems integration and AMS support. Besides rationalizing back-office and applying deep automation expertise to drive digital efficiency, Wipro is beefing up its Oracle capabilities with its acquisition of consulting firm SI Drivestream. It does not seem too far-fetched to imagine Alight leveraging the Wipro relationship to meet the growing demand for Oracle-based technology and outsourced solutions.
- New public sector opportunities. Alight is acquiring three marquee NGA clients, including the states of Florida and Texas as well as a mammoth SAP payroll deal for 85,000 employees of the Belgian Defence and Integrated Police. It also has recently been certified by Workday in government and higher education. Until now, its credentials have been primarily with benefits customers, but this may better position Alight for expanded business with government and education buyers.
Of course, not everything about the Alight-NGA combination is rosy. The combined entity faces just as many pitfalls as opportunities, with the greatest opportunities dependent on strong execution and a drive to increase value and efficiency for its customers. The global payroll market is ripe for disruption, but it remains to be seen whether Alight and NGA will find an efficient operating model that spans platforms, tools and delivery that can compete with the newly formed ADP-Celergo model or a complex ecosystem of aspiring global, regional and local competitors. Expect a bit of culture clash as the mechanics of two independent businesses from two different hemispheres begin to sort out new leads and chart a path forward for the blended organization. We must all wait and see whether adding NGA will bring Alight a significant financial upside to its valuation, debt and delayed IPO. Since its restructuring in 2015, NGA has been private-equity-owned, roughly 90 percent by Goldman Sachs and 10 percent collectively by KKR and Park Square. And since Alight is a Blackstone-owned portfolio holding, we may learn very little about the deal specifics and its acquisition cost.
There’s no question, NGA HR CEO Andy Monshaw will have coached his company through the right changes to broker a sale. In a high-stakes, competitive HR market, both Alight and NGA have endured long, challenging years and figured out how to thrive. HR digital transformation has created a market defined by epic change, and providers must make bold moves to remain relevant. Alight’s acquisition of NGA is a sign that it knows how to thrive in a global marketplace where, as Dwayne " The Rock " Johnson says in TV’s The Titan Games sports competition, “Titans aren’t born, they’re made.”
About the author
With more than 25 years of industry and consulting experience, Julie is an invaluable advisor for enterprises needing to evaluate and assess alternatives for multi-process HR service delivery, including workforce administration, payroll, benefits, compensation, recruiting, technology, learning, and talent management. Julie leads complex global HR assessments and transactions around the world. Prior to joining ISG, Julie worked for nearly a decade as an independent consultant, providing market research, vendor assessments, systems testing and implementation consulting to a broad community of benefits administration vendors and human resources departments. Julie started her career in human resources outsourcing, establishing shared service centers for a national benefits consulting and administration firm. She is a well-published thought leader in her field.