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Hewitt takes HRO lead with Exult acquisition

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Hewitt's acquisition of Exult for $691m sees it taking the lead in the nascent human resources outsourcing sector. The deal will put Hewitt ahead of traditional IT services giants such as IBM Global Services, Accenture, Affiliated Computer Services, and EDS, which are rapidly moving into the HRO sector.

The takeover is a significant move in the rapidly evolving HR BPO sector. Exult is the pioneer of the HR BPO market, and has secured major deals with Fortune 500 names such as BP, Bank of America, Prudential Financial, Vivendi, Universal Music, and Circuit City.

The merged business will have an existing base of clients serving some 600,000 employees from 21 companies in HRO, and in total 18 million people across 300 companies in the area of benefits outsourcing. Hewitt's skills in HR consulting will also give the combined business a further 2,300 clients.

Hewitt expects total revenue to increase by approximately 35 per cent in 2005 to $3bn, and revenue from outsourcing to jump 50 per cent. Exult expects revenue in 2004 to grow to between $575-600m, an increase of between 20-25 per cent on 2003. Exult's reliance on a small number of key accounts looks to have been a key factor in precipitating the sale. In April 2004, Exult suffered the high-profile loss of part of its flagship contract with Bank of America to rival Fidelity Investments in April. The loss dealt Exult a body blow. It said that billings would fall $25m in 2005, and up to $75m by 2006 as a result, and Exult's share price slumped 22 per cent in the space of one day.

Another major factor is the emergence of global IT services giants in the HRO space. In recent months, IBM Global Services, Accenture, ACS and EDS have won significant HRO deals, targeting the same potential client list as Exult.

HRO is one of the fastest growing sectors within business process outsourcing. However, the market remains in its infancy, and there are opportunities for many of the start-ups like Exult to be bought out as the industry matures.

Source: ComputerWire/Datamonitor

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