ACS Deal For Mellon Unit Shows HR Outsourcing's On A RollACS Deal For Mellon Unit Shows HR Outsourcing's On A Roll

Affiliated Computers Services is buying Mellon Financial Corp.'s human-resources outsourcing business for about $445 million, the companies said today. The deal is further evidence that the business of running HR for companies has gone from a niche industry to one of the fastest-growing segments in the outsourcing industry.

Mellon had about $660 million in HR outsourcing revenue last year, providing services such as managing 401(k), health care, and other benefit plans for about 3,000 clients. Mellon says that makes it the seventh-largest HR outsourcing business in the United States. The deal is expected to close by the end of the year.

While HR outsourcing is fast-growing, making money in the competitive and complex business of long-term services contracts is tough. While Mellon has been making "progress in repositioning" the HR consulting and outsourcing business for improved profits, the business will do better under a company focused on outsourcing and IT services, Mellon CEO and chairman Martin McGuinn said in a statement.

ACS already has an HR outsourcing business, which last month landed a $120 million deal to provide services from benefits administration to HR call centers to Delta Air Lines employees. Delta says it expects to save more than 25% of its HR and payroll costs over the life of the deal, and it's those kinds of cost savings that are driving the business. Yankee Group in a report last month concluded big companies can save 20% or more on the cost of their HR administration costs through outsourcing.

Other firms have made moves to bolster their HR outsourcing. EDS is creating a joint venture with the HR specialist Towers Perrin, and Computers Sciences Corp. last year partnered with Aon Corp., hoping to meld Aon's HR knowledge with CSC's IT and transaction experience.

Said ACS CEO Jeff Rich in a statement: "The multiscope [human-resources outsourcing] marketplace is one of the fastest-growing markets we serve, and we are uniquely positioned with strong subject matter experts, an industry leading global production model, and world class information technology skills."