Recently, Alight announced that it had agreed to sell its payroll and professional services business to H.I.G. Capital for up to $1.2 billion. Much of the focus on the Alight split continues from the lens of its heritage benefits business which will retain the Alight brand and continue its strategy for growth of its WorkLife® platform and portfolio of health, retirement, wellbeing and leave administration. Meanwhile, significant market-leading business is being apportioned to the “NewCo” that human resource, payroll and information technology leaders need to understand.
Typically overshadowed by the better known and promoted benefits business, the NewCo business accounts for roughly one-third ($1 billion+) of the total Alight revenue and a bit less than half (~8,000) of its total 18,000 global employees. Estimated at 700+ NewCo customers and logos, which are most large market organizations — approximately 70% Fortune 100 and 50% Fortune 500 customers. Customer contracts for benefit services are largely separate from new services which are a mix of one-time cloud deployment contracts and longer duration payroll managed services with close collaboration likely for customer renewals effective from now until January 1, 2025.
Alight (NewCo) Business Acquired by H.I.G. Capital
H.I.G. will acquire the application management and cloud deployment business and its HR and payroll outsourcing businesses serving North American and global markets. The new business will be led by Luca Saracino, Alight’s EVP of Payroll and Professional Services, who joined Alight as part of the acquisition of NGA Human Resources (formerly NorthgateArinso). Saracino is joined by leadership, sales and product experts who are recognized in the industry and with their customers for their experience delivering solutions to address HR’s two biggest transformation levers – technology and service delivery.
Technology transformation is rooted in cloud deployment and ongoing application management services for HR. An estimated 40% of the NewCo business is Professional Services which serves customer across all major HCM platforms – Workday, SuccessFactors and Oracle Cloud – expanded upon and strengthened by years of strategic relationships. NewCo will continue to nurture these relationships as a core part of their business model.
- Today’s Workday cloud business comes from 2012 and 2015 acquisitions of the largest Workday deployment and integration services in the U.S. (OmniPoint) and outside (Kloud), respectively. These first-mover acquisitions secured a thriving business for HR customers moving to Workday for the first time, adding new modules or outsourcing support for upgrades, enhancements and integrations.
- Similar depth of knowledge in SAP SuccessFactors was part of the 2019 NGA HR acquisition, a well-known leader in SAP deployment and application support for HR and Payroll functions.
- The new business is not without resources to support large complex Oracle HR customers, primarily through its 2019 partnership with DriveStream.
Service delivery is the second big HR transformation lever — and 60% of NewCo revenue is comprised of multi-year HCM and payroll outsourcing. The NewCo differentiates itself as one of the only solutions to deliver services using the customer’s own HCM platform instead of a proprietary software, allowing customers to shift its outsourcing mix over time without impact to the underlying software.
- With origins dating to the 2004 acquisition of Exult in the early days of HRO, the managed services business has been completely remade to deliver payroll and employee transactions (HR BPO) on Workday, SAP/SuccessFactors and Oracle Cloud platforms.
- Global managed payroll services were acquired from the acquisition of NGA HR, which was second only to ADP in EMEA and APAC regions. In early March, an upgrade to S4/Hana was announced for its global payroll platform components ahead of similar roadmap plans for ADP’s well-known GlobalView offering.
In the five years since adding NGA, significant investments have been made to stabilize, expand and integrate the NewCo business in support of enterprise HR transformation. The change in ownership to H.I.G. secures a continued focus on growth and investment in the global HCM, payroll and compliance business while Alight turns its sights to benefits, navigation and wellness acquisitions.
Commercial Partnership with Alight RemainCo
Alight’s announcement of the split referenced a commercial partnership with the new business, which primarily applies to Customer Care contact centers and back-office administration, both of which serve benefits and NewCo HR/payroll offerings today. U.S.-based Customer Care is virtual and offshore customer support is primarily from Gurgaon, India. WiPro now runs India’s hub and includes a comingled mix of benefits and HR call center activities. Two separate instances of case management technology underline the services for benefits and payroll, with integration in place for joint customers. The commercial partnership ensures Customer Care is uninterrupted for all existing and future customers.
The commercial partnership put in place will heavily incent both parties to collaborate, refer and seek ways to bolster their collective competitiveness while enabling NewCo with the flexibility of buying Customer Care rather than operating under a transition services agreement (TSA). The overall benefit to existing NewCo customers is the continuity of service for the foreseeable future.
Alight Worklife® is the platform recognized as the principal product offering for customer services spanning the new and remaining Alight businesses. As a result, much attention will be placed on maintaining the advantage of tight integration between benefits and payroll throughout the split. Alight benefits portal features and functionality include total rewards, integration to well-being partners and onboarding through partner Click Boarding will remain with Alight. Meanwhile, the singularly branded Worklife® platform is comprised of benefits portal components and separate payroll functionality that is an enhanced version of NGA’s portal formerly known as “hrX.” As a result, the underlying payroll functionality and portal investment is a clean and separable asset that goes with the new business.
Alight Pay is the part of WorkLife® that complements in-tenant customer payroll services by addressing global customers’ need for integrated payroll for employees around the world. NewCo will own all of the global payroll technology infrastructure, roadmap and security to serve rest-of-world payroll. Significant enhancements have been made to SAP-based payroll engines (once known as euHReka) that are used to delivery payroll for large country populations. Meanwhile, NewCo has built out native payroll engines for small country populations to grow its in-house managed payroll capabilities and lessen its dependence on third parties. By June 2024, Alight Pay will offer payroll processing in 36 countries with 12 more on the roadmap.
Other Services That are a NewCo Fit
Speculation will continue regarding the details of the split of services between NewCo and the remaining Alight business. First, there are investments tied to the global managed-payroll services and infrastructure mentioned above that will belong to NewCo:
- Payroll processing on Workday, SAP SuccessFactors and Oracle ranging from fully managed services to the “last mile” services such as tax filing, year-end processing and garnishments. This includes intelligent automations – “Eloise” for payroll defensive queries and “Lisa” virtual assistant as well as SAP worklets.
- All global payroll processing centers, including Granada, Krakow, Buenos Aires, Dalian and Kochi, which are some of the largest.
- Alight Payment Services, global payment processing in 140 countries through its partnership with Ebury for the convenience of single currency settlement for customers.
- Alight Digital Wallet comprise both pay card and earned wage access capabilities to facilitate employee pay.
- Pension payment services (pension payroll), which may separate the payment processing from the retirement recordkeeping. It is not uncommon for the payment activity to be sourced to a third-party payor or processed via internal payroll departments, so the processing mechanics are in line with industry practices.
The NewCo portfolio includes HCM and related workforce administration, including data quality management and talent services. Onboarding checklists and support for pre-hire paperwork and inquiries is a key component of NewCo HR experience often delivered using in-tenant HCM functionality.
As part of its cloud professional services, NewCo has a highly experienced Workday Extend (EXTD) business that brings deep deployment insight and accelerators for SAP/SF and Workday, which are used to optimize configuration for efficient outsourced administration.
Finally, some lesser-known benefits administration services are anticipated to receive greater attention and investment as part of the NewCo business compared to the remaining Alight benefits business.
- Benefits administration on Workday. NewCo is one of two organizations offering outsourced benefits administration to customers choosing to use Workday for U.S. benefits administration, including open enrollment performed on Workday. Competing with OneSource Virtual (OSV) in this space, the use of Workday for benefits has grown steadily in recent years whether the services are outsourced model or supported by the customer’s own shared services. Interestingly, this has been one of the fastest growing offerings as new and existing Workday customers seek to leverage their HCM investment.
- Powered by its 2021 partnership with Benify for global employee benefits and total rewards software, the Alight Global Employee Benefits solution straddles the benefits and payroll services domains. Given its ties to the global customer base, payroll deductions and compliance, NewCo will maintain the Benify business and relationship.
The Mechanics of Parting Ways
As with any split, there is much work to be done behind the scenes between now and close, likely occurring this summer. Most employers operate on one side of the business or the other, which helps mitigate concerns for the unknown. H.I.G. Group has a history of carve-outs of this size, investing for growth and an average holding period of five years during which the new business is excited to realize its roadmap of investments to strengthen its global offering. There are advantages to any NewCo that embraces the opportunity to take on its own identity and growth trajectory in hand. Notably, the boardroom politics involving Starboard Value are a benefits-side concern for the remaining Alight business. NewCo will be free of a significant number of new sales hires better suited for benefits services than complex HR transformation business.
All the existing leadership team outside of Katie Rooney (Finance) will be joining Milan-based CEO Luca Saracino. Recognized veterans leading the HR-Payroll business include Ben Dyl (Operations), Frank Leistner (Commercial and Products), Tiffany Cleaver (Workday Cloud), Johan Bosschaerts (Technology) and no change to the people teams performing day-to-day work for today’s payroll and professional services customers.
Alight’s decision to focus on the growth and investment of its core benefits business is no small matter. Customers will want to begin workstreams to identify and prepare for the changes contractually and operationally. With experience and knowledge in both benefits and the NewCo HCM-payroll business, herronpalmer is delighted to discuss your specific customer or prospect situation further.
Other Resources:
Alight’s original announcement – presentation and accompanying webcast are on the Alight Investor Relations site.
The Titan Games: Alight Acquires NGA Human Resources, 2019 blog by Julie Fernandez
