Cherie Smith Homa, Head of KPMG Corporate Finance's Investment Banking Team, quoted in Workforce Management

March 2007

In the March 2007 edition of Workforce Management, KPMG Corporate Finance had an opportunity to contribute to Fay Hansen's article, "Vendors Buying Up Capabilities.

Cherie Smith Homa,  Head of KPMG Corporate Finance's Invstment Banking Team, was interviewed with respect to how vendors are addressing their lack of full service offerings by acquiring firms that provide complementary service lines.

"HRO companies are pursuing acquisitions to expand their services and become comprehensive HRO providers for the midmarket," says Cherie Smith Homa, managing director for KPMG Corporate Finance’s investment banking practice. Smith Homa advises midmarket companies on outsourcing strategies and believes that the HRO acquisitions trend will continue in 2007.

KPMG Corporate Finance’s research reports 60 HRO acquisitions in 2006, reflecting a high level of consolidation in the industry. "A lot of the HRO providers are focusing on acquiring talent management providers," Smith Homa says. "Four of the 10 deals that occurred in October and November were talent management or applicant tracking deals."

"ADP’s acquisitions in 2006 and the guidance its management is providing to the market clearly signal that ADP sees huge opportunities in the midmarket and is building services to reach down into it," Smith Homa says. Outsourcing hinges on advancements in technology, she adds.

"Large HRO providers are focusing on the midmarket, and a number of smaller private companies are also focused there," Smith Homa says. All the providers are pushing pure economies of scale. So much of HR is bound up in technology, and the HRO providers have already made the investment."

The primary advantages of moving to comprehensive HRO for midmarket companies is that the HR function gains the expertise needed to ensure compliance and improve processes, Smith Homa says. "Companies are increasingly realizing that when HR goes wrong, whether it’s with payroll administration or benefits programs, it harms employees and the whole company."

Smith Homa says it’s difficult to determine which companies will become the top comprehensive HRO providers for the midmarket, but she believes companies that have served larger clients have an advantage.

"They need to offer a more simple solution for the midmarket, however, and one that is priced appropriately," she says.
Smith Homa also notes that in the midmarket the number of contracts for comprehensive HRO is small and growth is difficult to gauge. "It’s not like the large-enterprise market where press releases are issued when a provider lands a large deal," she says. "In the midmarket, no one deal is going to move the dial, but 12 months from now the number of contracts will look very different."

About KPMG Corporate Finance LLC

KPMG Corporate Finance LLC is a leading financial adviser serving domestic and international clients. KPMG Corporate Finance offers a full suite of investment banking and advisory services and the experience and depth of knowledge in global M&A and project finance to advise clients on mergers and acquisitions, sales and divestitures, buy-outs, financings, restructurings, fairness opinions, infrastructure project finance and other advisory initiatives. Operating in 51 countries, KPMG's Corporate Finance practice comprises more than 1,800 professionals who are able to meet the needs of KPMG's firms’ clients across the globe. In 2006, KPMG's Corporate Finance practice was ranked the number one financial adviser for completing the highest number of transactions globally (434 deals totaling US$48.9 billion), according to Thomson Financial’s global M&A league tables, and was named global financial adviser of the year by Infrastructure Journal.