Hewitt-Exult merger to create market leader

Revenue of the new entity pegged at $3 billion

The merger of human resources (HR) outsourcing firms Hewitt Associates Inc and Exult Inc will make the new entity a global leader in the rapidly growing HR business process outsourcing (BPO) industry.

Following the merger, Hewitt claims to be the only organisation capable of offering total human resources outsourcing services "" benefits, payroll, HR information systems, recruiting, learning and other HR services "" on an integrated basis with HR consulting expertise. The merger was announced on June 16.

"The addition of Exult's service mix, Six Sigma expertise and delivery capabilities to Hewitt's integrated HR outsourcing and consulting solutions and operating capabilities, will create a leader with flexible and broad HR solutions. We aim to be a one-stop shop for all HR services and will provide this on an integrated basis through a leverageable operating model," Dale Gifford, Hewitt Chairman and CEO, said in a press release.

Exult founder and CEO Jim Madden, who will focus on integration and transition, said, "The strategic merger indicates the fast-growing market for human resources outsourcing and reinforces the importance of HR domain knowledge in the marketplace."

The merged organisation will establish a leading position in the HR BPO business, serving more than 18 million participants from more than 300 companies with benefits outsourcing; more than 600,000 employees from 21 client organisations with broader HR outsourcing, including benefits, payroll and HR administration; and more than 2,300 companies with HR consulting.

The merger will also expand the firm's global presence and bring together many additional service capabilities, including recruiting and staffing, global mobility, time and attendance, learning and development, and accounts payable and expense administration solutions.

Based on the current estimates, the combined revenue of the two will approach $3 billion in 2005. The transaction is expected to increase revenue growth rates, enhance future profitability, and create long-term value for clients and stockholders of Hewitt and Exult.

As per the agreement, Exult stockholders will receive 0.2 shares of Hewitt Class A common stock, on a tax-free basis for each Exult share.

On a stand-alone basis for 2004, Hewitt continues to expect net revenues to increase 10 to 11 per cent from 2003 revenues of $2 billion. For 2005, before the effects of this acquisition, Hewitt expects total net revenue growth of 6-9 per cent.

With the merger, Hewitt expects revenue to increase by approximately 35 per cent, including more than 50 per cent growth in outsourcing for fiscal 2005, relative to Hewitt's expected 2004 revenue.