The acquisition of Ceridian Corp. will likely pave the way for the business process outsourcing (BPO) company to provide broader offerings in the human resources space, said a Canadian analyst.
The Bloomington, Minn. -based company announced Wednesday it will be acquired for US$5.3 billion by Thomas H. Lee Partners L.P., an investment firm, and Fidelity National Financial Inc., a provider of title insurance, specialty insurance, and claims management services.
Jim Westcott, IDC Canada‘s research manager for business transformation processing, said that while Ceridian’s hold on the payroll processing space is solid, it hasn’t had as much success making waves in the human resources side.
Ceridian has, for a number of years, targeted human resources functions in the Canadian market, he said, and it’s been an uphill battle because the company is so well entrenched in the payroll space with few strong ties in the human resources side.
However, Westcott thinks the acquisition will change this. “Once it becomes a privately held company by these firms, they’ll be able to use their caste position in the payroll space to try and fund some of their efforts they’ve been undertaking in becoming more of a full-scale HR services provider.”
In its announcement, Ceridian said the goal is to build upon its market position and “maximize value for its shareholders.”
Human resources is a definite growth area, according to Westcott. Expanding into this space is a good move for Ceridian considering payroll – although a steady and profitable business for the company – is “not growing all that fast.”
Westcott anticipates Ceridian customers won’t be affected by the change, other than perhaps a change in leadership. “But overall the business mix won’t change. They are still going to work with customers to try to build their business and move forward,” he said.
Robert Brown, research vice-president with Stamford, Conn.-based Gartner Inc., said that existing customers will have to perform due diligence to find out how services might change, if at all. “Buyers will need to understand from their account executives at Ceridian as soon as they are able to, what impact this acquisition has on their contracts with Ceridian, and what it does potentially to Ceridian’s forward strategy.”
Brown said that such acquisitions are not a reflection on enterprises choosing to outsource business processes, rather, it concerns dynamics on the supply side of the equation.
“There is a definite trend in the marketplace since the end of 2006 of private equity firms circling around some of the players in the BPO market to take them private or otherwise invest funds into them as the majority stakeholder,” said Brown.
There is the belief, he added, that private companies feel they can improve margin positions of some of these BPO players.
He notes, however, that Ceridian’s margins are “pretty good” – as are rival ADP’s.
Brown said infusing private capital into this market is a “long term money-making proposition.”
According to Westcott, the acquisition probably indicates that Ceridian’s buyers believe that the BPO business is a good one to be in. In addition, Thomas H. Lee Partners L.P. and Fidelity National Financial Inc. “may be looking at moving up market and filling out their portfolio of service offerings to be more relevant to a larger number of customers.”
The news won’t present too big a concern for Ceridian’s main competitor, ADP, said Brown, considering they have been “neck and neck” in the North American space.
Westcott said: “I don’t think a lot will change day to day in competition between Ceridian and ADP. They’re still going after the payroll business in North America, and still trying to broaden the scope of offerings into the human resources field.”
ADP declined to comment.