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Rumors Abound of Talks Between IBM and Convergys

November 8, 2005
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Industry rumors are circulating that IBM is in talks to acquire Convergys in an effort to catapult itself ahead of its competitors in HR business process outsourcing.

Rumors about deals in the HRO market are a constant, but industry observers say that over the past few months, both consultants and competitors have heard of talks focused on Convergys.

In July, the Cincinnati-based company announced a 10-year deal with Whirlpool. Convergys is taking over payroll, benefits and pension administration as well as aspects of recruiting and performance management for Whirlpool’s 68,000 employees worldwide and 14,000 U.S. retirees.

Earlier this month, the company announced a 13-year deal with DuPont worth $1.1 billion. Convergys is providing customer care, human resources and billing services to DuPont’s 60,000 employees and 102,000 retirees worldwide.

These two deals propelled Convergys from seventh place to second in terms of total contract value, according to Everest Group. Total contract value for deals during the past two quarters was $2.8 billion, with the DuPont deal alone worth $1.1 billion, notes Michel Janssen, managing research director of Everest Research Institute.

The DuPont deal could have prompted IBM to take a closer look at Convergys, given the size of the contract, says Phil Fersht, global research vice president at NelsonHall.

Convergys is strong in the delivery of technology services and good HR expertise, says Jason Corsello, an analyst at Yankee Group. "That would complement IBM’s existing model," he says.

By acquiring Convergys, IBM could become the second-biggest provider in HR business process outsourcing in terms of total contract value, number of employees served and number of clients, Janssen says. Currently Hewitt Associates and Accenture are in first and second place, respectively.

John Pratt, a Convergys spokesman, declines to comment. John Vuscemi, an IBM spokesman, says the company does not comment on rumors.

IBM has been looking at an acquisition for some time, according to industry observers. Since IBM hasn’t gotten real traction in HR outsourcing, it would make sense for the company to take a serious look at Convergys, Corsello says.

If the IBM does end up acquiring Convergys, it could cause a frenzy of companies to seek out IBM as an HR outsourcing provider, he says. Many companies would like to work with IBM because they use it in other areas, but they have been waiting for the company to gain the capabilities it needs to be a leader in that business, Corsello says.

"A lot of deals are backlogged because companies are waiting for their vendor of choice," he says. "This could be the event that pushes a lot of companies into outsourcing."

Jessica Marquez

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