Hewitt Associates LLC will acquire the employee benefits practice of Bacon & Woodrow, effective in May, when the 75-year-old independent partnership will be formally split.
The deal will give Hewitt, based in Lincolnshire, Ill., a foothold in the United Kingdom and Europe, and give London-based Bacon & Woodrow access to Hewitt's U.S. client base and a strong employee benefits network, said a Bacon & Woodrow partner who asked not to be named.
The firms plan to set up a global investment consulting practice, according to a joint statement. This will boost Bacon & Woodrow's global presence; its main rivals are Watson Wyatt Worldwide and William M. Mercer, both of which have strong global investment consulting operations.
Bacon & Woodrow is to withdraw from the Woodrow Milliman network of actuaries and consultants as a result of the deal.
In a separate transaction, Bacon & Woodrow also will sell its insurance practice to Deloitte Touche Tohmatsu, New York.
Its joint venture with Callan Associates, San Francisco, presumably also will be severed, because Callan and Hewitt are direct competitors, said Ronald Peyton, Callan's president.
Mr. Peyton said the Hewitt/Bacon & Woodrow deal was unexpected. "It was a complete surprise to us," he said. "They informed us (the day before the deal was announced) that they were doing the deal." He added that Bacon & Woodrow had not asked Callan if it wanted to merge with the firm.
`Don't know what happened'
But Peter Bennett, managing director in charge of Hewitt's U.K. operations, said that in the early stages of negotiations between Hewitt and Bacon & Woodrow, "we were hopeful that we might interest Callan in being involved (in the deal). I don't know what happened."
According to Mr. Peyton, the joint venture included client referrals and sharing information about investment managers.
Although there has been speculation that the relationship was not satisfying to Bacon & Woodrow, Mr. Peyton said, "It met our expectations. It was a comfortable, mutually agreeable relationship that worked because our two firms had a similar culture."
"I can understand entirely why Bacon & Woodrow" merged with Hewitt, said an executive of another global consulting firm who did not want to be named. "Their clients were demanding a global consultancy, and the tie to Callan didn't seem to be delivering what they wanted."
Hewitt, meanwhile, gains access to the important U.K. pension consulting market, according to the source. "They've been weak in the U.K. In one jump, this brings them (Hewitt) up to the major leagues."
Another consultant who asked not to be named said that he doesn't think the deal gives the merged firm a truly global reach. "I'm not sure what the deal does on a global basis," he said. "They're still weak in continental Europe and Asia and Latin America." He added: "They still have a way to go before they are a threat to the big three - Watson Wyatt Worldwide, William M. Mercer Inc. and Towers Perrin."
The consultant called Hewitt a "very formidable player in the U.S.," but not in other regions of the world. He added that his firm would have liked to acquire Bacon & Woodrow, but was never approached by the firm. "We have some envy now," he said.
From the Hewitt perspective, the deal makes perfect sense, according to Mr. Bennett. "The pensions and actuarial market is mature in the U.K.," he said. "We've been in the U.K. since 1985, but we hadn't been able to gain that much business."
"We gain in the U.K. They (Bacon & Woodrow) gain in the U.S. Our services are quite complementary," he said.
"From the actuarial and (investment) consulting side, we don't anticipate any problems merging the two groups," added Mr. Bennett. "They're stronger in the actuarial and pension advisory and pension consulting businesses and we're stronger in pensions outsourcing, providing member services and health plan and pension plan administration, and stronger in human resources consulting."
The deal is a "pure merger" of two private partnership organizations, with no purchase price, according to Mr. Bennett. "They will bring their people and client relationships, and their partners will become partners in our firm," he said. When the pay and bonuses of partners are divided up, Hewitt will look at which part of the firm has contributed the most to the whole.
"When we adjust partners' pay, we will take a look at profitability that makes up part of partners' compensation," said Mr. Bennett.
When asked if that means former Bacon & Woodrow partners might earn less compensation if their unit contributes less profits to the merged firm, Mr. Bennett said, "I suspect that won't be the case. I think there are some guarantees involved."
There also should be "client synergies," said Mr. Bennett, as the two firms have some U.K. clients in common and Bacon & Woodrow has European clients to bring to the deal.
"Hewitt is underlining its intention to increase its presence in key European countries," said Mr. Bennett. particularly in the United Kingdom, Germany and France.
Mr. Bennett thinks "the cultures of the firms will mesh well. People in both organizations have a similar outlook and stated values."
Beatrix Payne contributed to this story.