Aon Hewitt continues the trend—with a few key differences, Hewitt says.
There's been no shortage of news coming out of the HR marketplace of late. Less than a year after Watson Wyatt and Towers Perrin merged into Towers Watson, Hewitt Associates and Aon Consulting formed the $4.3 billion Aon Hewitt, which is the "undisputed industry leader" in the HR space, according to Matt Levin, senior vice president of corporate development and strategy for Hewitt. Levin says both Aon and Hewitt have been keenly focused and patient about growing their own businesses while much of the industry was busy doing "deals out of desperation." Levin sat down with Consulting to discuss Aon Hewitt, which will have 29,000 associates globally and will be lead by Russ Fradin, the current chairman and CEO of Hewitt.
Consulting: How did the deal come to be?
Levin: We were approached by Aon, and we were obviously intrigued by the overture, but we needed to have meaningful discussions about how a combination would advance each of our strategic plans and ambitions. It became clear pretty quickly that in one transaction, we would be able to satisfy and accelerate a series of strategic initiatives that would have taken us a very long time to do on our own. For example, our growth agenda included growing the middle market and growing internationally. Hewitt largely serves Fortune 500 companies. Every time we compete in the mid-market, we do very well, but we don't have the distribution to reach the thousands of mid-market companies both domestically and internationally. Aon offers us that immediately.
Consulting: Professional services, and consulting in particular, has a checkered past when it comes to mergers and integrations. Why will this one be different?
Levin: It's a great question. Professional services are the hardest to do because they are massively people intensive. That being said, Hewitt and Aon both have fairly good track records of acquiring professional services firms and integrating them well. That gives me a lot of comfort. Another area that gives me comfort is the portfolios are highly complimentary. Other mergers in our industry have been of two like firms, and that's very hard to do. We're combining a $3 billion diversified business with a $1.3 billion consulting firm.
The Hewitt legacy business is $2 billion of outsourcing and $1 billion of consulting. Aon is about $200 million in outsourcing. So, we're combining a $2 billion outsourcing business with a $200 million outsourcing business. So, we're not going to have the natural conflicts of merging like firms. And both of us have about $1 billion of pure consulting revenue, and there's not a lot of overlap there, either. If you think about other mergers in the space, at every point in the org chart there's an equal-sized partner. There are a lot of losers when that happens. That's not to say that there won't be a few areas where Aon and Hewitt will have some overlap, but it's considerably less than other deals in the marketplace.
Consulting: Speaking of overlap, you've already announced a potential cost savings of $355 million…
Levin: True, and those are largely in back-office functions and redundant staff functions, not client-facing professionals. This is not a cost-saving deal. We did this deal because we see revenue-generating opportunities, not cost savings. Each firm can accelerate the strategic agenda of the other.
Consulting: How do you see Aon Hewitt fitting into the overall HR consulting marketplace with Mercer and Towers Watson?
Levin: We view our competitive set outside Mercer and Towers. If you look at the composition of our business, it's very different from theirs. That said, we are meaningfully larger than both by roughly $1 billion each. If you asked an analyst if they'd rather be invested in a $4.3 billion business that's perfectly balanced between consulting and outsourcing or a smaller firm that's much more consulting heavy, I think the analyst would chose our model.
I think Hewitt showed on a stand-alone basis for a very long time that there can be a vey symbiotic relationship between administration services and consulting, and that's our model going forward. We're the only one that looks like us, and if you wanted to devote your career to HR services, we're the place to be. We really believe that we have created the undisputed industry leader in terms of size, scale, coverage and product breadth. We're very bullish on our story, and we're very committed to making it work.
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