Korn Ferry buys HR advisor Hay Group for $452 million

Korn Ferry, the world’s largest executive-search firm, has acquired Hay Group, one of the most renowned HR consultancies of the globe. As part of the deal, worth a reported $452 million in cash and stock, Korn Ferry will bundle its Leadership and Talent Consulting advisory business with Hay Group, creating a 7,000 man strong human capital advisor.

Founded in 1943, Hay Group has 3,100 employees spread in 50 countries, making it one of the larger specialised HR consultancies of the globe. The advisory firm specialises in among others human capital management, organisational performance, compensation & benefits, actuary and talent management, and in addition provides a range of services and solutions across its proprietary pay data and skill sets, spanning thousands of executives and millions of professionals.

For Los Angeles-headquartered Korn Ferry, the move to acquire Hay Group follows its ambitious growth strategy. The executive-search and recruitment firm this year topped $1 billion in revenues (FY2015) for the first time in its history, and going forward CEO Gary Burnison recently unveiled he aims to double the company’s revenue from fees in the next few years. Besides the growth in size – the Hay Group acquisition is Korn Ferry’s largest since it was founded in 1969 by Lester Korn and Richard Ferry – the recruiter sees significant growth potential. Employers are ramping up their spending on leadership and manager development, according to recent surveys from among others The Conference Board and Deloitte, and against that backdrop, Korn Ferry had earmarked human capital consulting a priority area for growth. Its existing business line, named Leadership and Talent Consulting (LTC), represents about 30% of the firm’s business, and saw its revenue increase by $5.6 million in the quarter that ended July 31.

“Korn Ferry, now with Hay Group, will be the preeminent global people and organisational advisory firm. We will be approximately 7,000 of the best and brightest minds of our industry who have a single goal. Unleashing the best and brightest people so that organisations around the world may reach their highest aspirations, strategic goals, and ultimate potential,” says Burnison.

The bundling of data and underpinning tools & solutions is another key deal driver. Combined, the firms will own some of the most comprehensive leadership, reward and engagement databases in the world, positioning them as a runaway leader in the field, ahead the likes of rivals Aon Hewitt and Towers Watson.

Immediately following the closing of the transaction, expected later this year*, Korn Ferry will combine Hay Group with its LTC practice, and brand the combined advisory business as Hay Group. Stephen Kaye, CEO of Hay Group, will continue to serve as CEO of the new entity.

“We are delighted to be joining Korn Ferry,” comments Kaye. “We feel this is the perfect combination of two great firms that will be uniquely positioned to help clients achieve their strategic goals and highest aspirations. In Korn Ferry we have found a like-minded partner committed to enabling stellar business performance through people and organisational effectiveness.”

With the move come synergies. Buyer Korn Ferry says it is targeting annual cost synergies of at least $20 million within a year of the deal’s closing. The main efficiency driver will be a reduction in real estate costs – Korn Ferry’s 3,900 employees are in 78 offices in 37 countries, while Hay Group’s professionals are in 88 offices in 50 countries – although layoffs are expected to be ahead for support staff in functions like finance and information technology.

Upon completion of the integration, Korn Ferry will face an evenly split portfolio between recruiting and human-capital management, with both areas accounting for roughly half of the business. An opportunity for cross-selling, says Burnison, stating: “Much like somebody goes to the gym and exercises and has a personal trainer, why shouldn’t somebody be able to turn to an organisation to improve their lives, and improve their skills?”

* The deal is subject to shareholder approval, antitrust clearance and other customary conditions.