U.K. Outsourcing Provider Acquires Arinso

May 2, 2007
In a move that surprised many industry observers, British HR and payroll outsourcer Northgate Information Solutions announced Wednesday, May 2, that it is acquiring Brussels, Belgium-based HR outsourcer Arinso International.

Under the terms of the deal, Northgate will acquire a 60 percent majority stake pending shareholder approval, then the rest of the shares on August 1 for a total of $514 million.

Arinso offers SAP implementation and pan-European payroll services, among other HR outsourcing processes, but it is best known for being the payroll provider behind such large HRO agreements as the $1.1 billion deal between Unilever and Accenture. Arinso also provides payroll for HRO deals led by ACS and Hewlett-Packard.

For some time, analysts have speculated that Arinso would have to be acquired to have the capital it needs to go after large HR business process outsourcing deals on its own. But CEO Jos Sluys has shied away from offers, which has caused some analysts to ask, why now?

“Everyone has tried to buy Arinso,” says Naomi Bloom, managing partner at Bloom & Wallace, a consulting firm in Fort Myers, Florida. “Northgate’s offer is generous, but it’s not ridiculously generous, so you have to ask, what else is going on here?”

The deal gives Arinso scale, which it knows it needs to be a major HRO provider, company spokesman Michael Custers says.

“Scale and volume are absolutely critical in the outsourcing business,” he says.

It also gives Arinso a stake in the U.K., a market it has been unable to penetrate, Sluys said in an analyst call Wednesday.

“We had to compete with Northgate on all of those deals, and nine out of 10 times we lost,” he said. The acquisition provides Northgate with an automatic presence in more than 25 other countries, Sluys said.

HRO clients will now have the choice of either using SAP, which has been the core of Arinso’s offering, or Northgate’s ResourceLink platform.

“At this stage we are more of a challenger to our friends at ADP,” Sluys said.

But Bloom and other analysts speculate that there might be more to the deal than meets the eye. Northgate is partially owned by General Atlantic Partners, a private equity firm that also invests in a number of HRO providers including Lincolnshire, Illinois-based Hewitt Associates, TriNet of San Leandro, California, and London-based Xchanging.

“There are a lot of possible synergies in General Atlantic Partners’ portfolio,” Bloom says. “The possibilities are huge.”

Having that kind of opportunity and funding might have been what made Sluys finally agree to a deal, she says. But how Arinso’s HRO partners will react remains to be seen.

“This deal will cause considerable discussions at Accenture and Arinso’s other HRO partners,” Bloom says. “The reason Accenture and others didn’t worry unduly about Arinso was because Arinso didn’t have the capital. Now they do.”

But Accenture could also view the deal as good news, since it makes Arinso a much stronger partner, PA Consulting analyst Neil McEwen says.

“The deal makes Arinso stronger, but I don’t see them becoming a competitor to the likes of Accenture for at least two or three years,” he says.

After the deal closes, Arinso will maintain its brand and presence. Northgate CEO Chris Stone will lead the combined company. Sluys will become an executive board member of Northgate and will take on a leadership position in Europe.

Jessica Marquez


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