The proposed acquisition of benefits consultant Kwasha Lipton L.L.C. by Coopers & Lybrand L.L.P. is expected to position the firm to participate aggressively in what officials expect will be a movement toward human resources outsourcing.
The combination - announced last month - strengthens Coopers' position in the administrative outsourcing market including defined benefit, defined contribution and health and welfare transaction business.
Coopers said it will merge Kwasha Lipton, Fort Lee, N.J., with its Human Resource Advisory business. Kwasha has 42 partners and a staff of 550, while Coopers & Lybrand's Human Resource Advisory consists of 81 partners and a staff of more than 1,000.
The acquisition is but the latest in a flurry of M&A activity in the consulting industry. Mellon Bank Corp., Pittsburgh, recently signed a letter of intent to acquire Buck Consultants Inc., New York (Pensions & Investments, Jan. 6).
Several other deals in recent months also affected consultants involved with benefits outsourcing. Watson Wyatt Worldwide last year formed a joint venture with State Street Boston Corp., known as Wellspring Resources in Jacksonville, Fla., to provide benefits administration services. State Street then bought Wyatt's daily valued defined contribution plan services center.
Aon Corp., Chicago, is near closing on its deal to acquire Alexander & Alexander Services Inc., Lyndhurst, N.J.
Howard Fluhr, president and chief executive at Segal Co., which is exiting the transaction processing and defined contribution record-keeping business, said the Kwasha/Coopers deal demonstrates the need for companies in that business to have support from a larger business partner.
"As some consulting firms decide outsourcing is going to remain a strategic part of their business, they find it requires enormous resources to stay with the pack. It takes a lot of investment in systems and technology. It is hard for an independent company to do that," said Mr. Fluhr.
Under terms of the Coopers & Lybrand/Kwasha Lipton deal, the combined unit would be called Human Resource Advisory. It would be headed by Reed A. Keller, now vice chairman of HRA at Coopers. The Kwasha Lipton name will be maintained through a unit called the Kwasha Lipton Group, which will handle the combined retirement and benefits administration services. Robert S. Byrne Jr., currently chief executive at Kwasha Lipton, will lead the Kwasha Lipton Group.
Mr. Byrne said he decided on the Coopers merger after a yearlong review of Kwasha's position in the consulting arena.
"I concluded in December that . . . yes, we could be successful on the administration side on our own, but I don't know if during the next wave (of human resources outsourcing) we could be successful given our size and resources," said Mr. Byrne.
He said the deal "wasn't driven by need." He said Kwasha's administrative services "finished in the black" in 1996.
He said he examined various joint venture, alliance and partnership possibilities with a variety of firms, but was not interested in joining or being acquired by a financial services firm such as a bank.
"I didn't think that a union with a financial institution was in the best interests of us or our clients," said Mr. Byrne.
He said the acquisition by Coopers would be a benefit over the long term as corporations look to outsource not only their benefits functions and administration, but also more human resource department functions.
"Over the longer term, the combined entity will result in lower per-unit expenses. And, we expect the next wave will not stop with benefits outsourcing but the whole human resources function, including payroll, compensation and the other human resources functions. That wasn't an area we have a lot of expertise and is one Coopers & Lybrand does have some expertise," said Mr. Byrne.
Mr. Keller said his firm was attracted by Kwasha's strength in benefits and administration outsourcing, which he called a "high growth area" that frequently leads to "project-based consulting work," and to Kwasha's innovation and reputation in the retirement planning area.
Kwasha has expertise in actuarial, consulting and administrative areas such as record keeping, benefits administration and human resource/benefits consulting. Kwasha also is given credit for innovation in developing the cash balance pension plan.
Kwasha's clients include a mix of both large and smaller plans including Bank of America, San Francisco; Cummins Engine Co. Inc., Columbus, Ind.; and Countrymark Cooperative Inc., Indianapolis.