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Alight and NGA - an HCM acquisition with bold ambitions

Brian Sommer Profile picture for user brianssommer August 23, 2019
Alight is to acquire long-time HCM and global payroll services provider NGA HR. It’s a deal that helps Alight continue with its impressive growth in the HCM space. The deal also impacts a number of HCM vendors, notably notable Workday and SAP.



In one of the bigger stories of the week, NGA HR is being acquired by HR services firm Alight for an undisclosed sum in a deal due to close in Q4 of 2019. 

NGA HR has a significant global payroll operation that claims to support processing in 188 countries. NGA HR is often an alliance partner with numerous HCM/HRMS software providers as few software firms can provide payroll engines for more than a handful of countries.  NGA is an alliance partner with Workday and Alight has a material Workday practice.

The NGA angle 

Technology company NGA was founded in 1969 (approx. 50 years old). I’ve covered NGA for a long time. In fact, I once visited with one of its predecessor firms, Peterborough Software in Peterborough England in the mid-1990s. The company has had a long, varied (if not at times tortured) life. In the early days, the company manufactured computing hardware that used the PICK operating system. Aspects of the firm ended up in the McDonnell Douglas Information Services firm.

The company went through a management buyout in the early 1990s and did a number of acquisitions (e.g., its rival Peterborough in the late 2004) including one for HR solution Prolog in the early 1990s. The company has launched and spun out several businesses.

There were a lot of acquisition and divestitures in NGA’s history and readers might find this Wikipedia recap a fascinating, if not head-turning read.

NGA was acquired by private equity firm KKR in late 2007 for £593 million. Apparently, they ended up saddled with a lot of debt as part of that deal and afterwards I didn’t see any real innovation come out of NGA for several years. I believe the KKR deal may have made for some nice management fees and dividend payouts for KKR but it didn’t seem to help NGA.

In 2010, I wrote about the firm’s acquisition of Convergys’ HR BPO practice.

In 2012, I published a piece on NGA for ZDNet. At that time, I said the company was developing a BPaaS solution and on track to post $1 billion in revenue.

In 2015, I wrote:

NGAHR also offers an HR-BPO solution based on Workday’s Payroll solution. I believe the offering is being targeted for firms in the 3000-15,000 employee equivalent space.

NGAHR also has the Payroll Exchange. This solution provides payroll capabilities in 145 countries. About a third of those countries are natively covered via NGA’s euHReka BPaaS. There are roughly eight key payroll platforms within this.

In November 2015, seven years after the KKR buyout,  Reuters reported that KKR’s position was replaced by Goldman Sachs and Park Square Capital in a debt-for-equity swap. At the end of that transaction, NGA still had over $400 million in debt.

In the Fall of 2016, I also wrote:

Probably the best part of the conversation revolved around the elimination of over $600 million in debt that had been adversely impacting the company’s cash flow and R&D. With that out of the way, the company has been morphing its products and services extensively.

NGA HR now has relationships with Kronos for Time & Attendance and Workforce Management functionality. That relationship has already spawned a major pilot with a leading German manufacturer.

NGA HR is planning to use more RPA (robotic process automation) and other new technologies to help it grow the number of service centers and the services offered within them. Their goal is to do so without adding net-new headcount to the company.

In November 2017, diginomica’s Phil Wainewright wrote:

This is the emerging market that HR and payroll services provider NGA HR aims to address with its newly available package called cleaHRsky. The "HR as a service" offering promises "service activation in 100 days." It is a preconfigured implementation of SAP SuccessFactors, including extensions built on SAP Cloud Platform to incorporate NGA's own payroll and helpdesk services into a single, consistent user experience. Similar extensions built on Workday Cloud Platform are to connect NGA services into the Workday UX.

This new push into the cloud on the part of NGA HR is a reflection of the transformation in its own market. With a 40-year history, its core business is in business process outsourcing (BPO) of payroll and HR processes. Today, it has four lines of business — HR technology consulting, HR application maintenance, payroll outsourcing, and HR outsourcing. But how it goes about delivering those services is changing, with pricing and automation being two areas where there's significant transformation.

Another big change that took place earlier last month was the spin-off of its local UK midmarket and SMB business units to Bain Capital. That leaves NGA HR firmly focused on the global enterprise market and with a new CEO in place, Andy Monshaw, who previously led the enterprise division. It also means the company has no private equity debt to service for the first time since a buyout by KKR in 2007.

I believe some of the best software Northgate had was its euHReka software. There was a time when euHReka could provide a better UX and even offer multi-tenancy for SAP’s HCM solution (when a pre-SuccessFactors) could not. Their newer BPaaS solutions are also interesting but the real crown jewel is their network of global payroll technologies.  I suspect the global payroll and BPaaS assets are what Alight really wanted to buy.

NGA’s debt load and numerous divestitures, strategy changes, etc.  over the last decade or so didn’t do the company any favors. I actually liked the folks there. NGA’s analyst relations person, Michael Custers, survived numerous CEO changes and was a real pro.

NGA will definitely make Alight a lot more global and a lot more strategic to HCM vendors like Workday and SAP.

The Alight angle 

Alight has become a big, growing deal in HCM solutions the last few years. It now possesses HCM expertise from predecessor firms Aon Hewitt, Appirio and Knowledge Infusion.

diginomica’s Phil Wainewright wrote in February this year:

Three years after acquiring Salesforce and Workday integrator Appirio, professional services giant Wipro has sold off its Workday and Cornerstone OnDemand practices to Blackstone-backed HCM specialist Alight, which filed preliminary papers for an IPO two weeks ago. The $110 million deal is set to close next month.

The remaining Appirio business, which still operates under that brand as a Wipro subsidiary, now returns to its roots as a Salesforce-focused integrator. Launched in 2006, Appirio became a leading light among the new breed of cloud integrators that sprouted up at the time to deliver enterprise solutions based on Salesforce, Amazon and Google Apps (now G Suite). Appirio added cloud HCM expertise after its acquisition of Knowledge Infusion in 2013, which specialized in delivering Cornerstone and Workday solutions. That became the foundation of the 350-strong team that is now set to join Alight.

Alight is a relatively new name but a long-established business in the HCM technology ecosystem. It was formed in 2017 when insurance broker Aon sold its benefits and HR technology business, then known as Aon Hewitt, to private equity investment group Blackstone in a $4.8 billion deal. With a 25-year operating history, Alight provides benefits administration, HR business process outsourcing and Workday implementation and support services to some 3,000 clients.

The subsequent Alight/Wipro deal was an interesting one, too. Phil added this insight on that transaction:

The purchase of the Workday and Cornerstone practices from Wipro is a follow-up to a deal last year which saw Alight sell off its Indian operations to Wipro for $117 million, at the same time as signing up for a ten-year, $1.6 billion outsourcing contract with the IT services giant. That deal provides IT outsourcing to support Alight's provision of benefits, payroll and HR operations to its customers, as well as application maintenance services. Wipro has now returned the favor with its $110 million sale of the HCM practices to Alight.

Once this deal closes, Alight will consolidate its position as a leading Workday partner. Even before adding the 350 from Wipro, it employs around 1,300 certified Workday professionals, according to its Raven Intel listing. The Wipro infusion will help bolster its presence internationally, particularly in EMEA, as well as adding to its US resources. Alight is also consolidating its financials capabilities. Last week it said it has acquired Carlson Management Consulting, an experienced partner of Adaptive Insights, the financial planning solution acquired by Workday last year.

Alight is a younger firm than NGA and has been very focused on cloud HCM projects/clients.

My take

The deal appears to close the book on NGA. I fully expect NGA to be either fully integrated into Alight or be a division within it.

One value from the deal comes in being able to cross sell NGA’s capabilities to Alight’s customer base. If successful, it would generate a significant amount of recurring revenue to Alight. Software implementers generally have lots of one-time revenue and not a lot of recurring revenue. Alight will have to work out go-to-market and account management roles as they integrate NGA.

What I wonder though is does this deal create complications for the deal Alight did with Wipro just this last year? I could see Wipro requiring Alight to partition the NGA and Alight outsourcing businesses. I’m sure Alight’s legal group has already pondered this.

This deal also catapults Alight’s HCM practice into the big leagues. This really elevates their importance in the Workday and SAP HCM ecosystems. We should expect to see more of Alight’s presence at Workday, SAP, Cornerstone and other HCM vendor events. I’m sure we’ll hear more of this at the upcoming HR Technology Conference in October.

Overall, it seems that Alight wants to continue to grow and grow at an outsized pace. Clearly, they are comfortable with both organic and inorganic growth.  If they bought NGA at good price (and didn’t have to assume too much of NGA’s debt load), this could really work for them.

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