May 21, 2024

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Alight Selling Professional Services And Payroll Services For Up To $1.2 Billion

3 min read

Alight (a leading cloud-based human capital technology and services provider) signed a definitive agreement to sell its Professional Services segment and its Payroll & HCM Outsourcing businesses within the Employer Solutions segment to an affiliate of H.I.G. Capital for up to $1.2 billion. This deal values the Payroll & Professional Services business at a multiple of approximately ten times its estimated 2023 adjusted EBITDA and 24 times its estimated unlevered free cash flow.

Following the deal, Alight and the Payroll & Professional Services business will establish a commercial partnership to support their collective competitiveness. This partnership will combine world-class service capabilities with a compelling client value proposition.

Alight’s Worklife platform is positioned to help clients enhance employee engagement and achieve cost savings through advanced solutions. And by focusing resources on strengthening its platform, service capabilities, and go-to-market strategy, the company will be better positioned to drive improved cost, experience, and productivity outcomes for its clients.

Alight’s focus over the last four years on standardization, automation, and Cloud migration significantly enhanced the margin profile of the remaining core business. Thus, upon deal closing, Alight will achieve nearly 300 basis points of adjusted EBITDA margin expansion. Plus, the company is increasing its mid-term adjusted EBITDA margin target to 28%, which would mark 600 basis points of potential margin expansion compared to last year.

Alight also plans to accelerate the achievement of other mid-term financial objectives including higher cash generation and a de-levered balance sheet with net leverage ratio expected to be below three times. And this will enable continued strategic investment in the business and the return of excess capital to shareholders.

This deal represents a transaction value of up to $1.2 billion, in the form of $1 billion in cash and up to $200 million in seller notes, of which $150 million is contingent upon the Payroll & Professional Services business’ 2025 financial performance. And Alight expects to use the net after-tax cash proceeds to reduce debt, return capital, and for general corporate purposes, including reinvestment into growth opportunities. The deal has been approved by Alight’s Board of Directors and is expected to close by mid-year, subject to customary closing conditions, including regulatory approvals.

J.P. Morgan Securities served as financial advisor, and Simpson Thacher & Bartlett served as legal counsel to Alight. And Guggenheim Securities served as financial advisor and Kirkland & Ellis served as legal counsel to H.I.G. Capital.

KEY QUOTES:

“This strategic transaction results in a more agile Alight and enhances our competitiveness as we strengthen our technology and services value proposition. Coupling our strategic partnership with the Payroll & Professional Services business alongside our strong benefits business, delivery capabilities, data analytics, and artificial intelligence will ensure prospective and new clients remain on the frontier for wellbeing and benefits solutions. With today’s announcement, we believe the stage is set for Alight to unlock the power of its platform transformation and deliver world-class, innovative solutions that improve client outcomes and enhance shareholder value.”

– Chief Executive Officer Stephan Scholl

“We are excited to partner with H.I.G. to establish a standalone global leader in payroll and professional services. By focusing our investments and energy on enhancing our highly differentiated, end-to-end technology and service capabilities, we will be able to add significant incremental value for our clients. With H.I.G.’s support, expertise, and resources, as well as our continued commercial partnership with Alight, we are well-positioned as the partner of choice for global enterprises.”

– Luca Saracino, Head of the Payroll and Professional Services business

“We are thrilled to partner with Luca and the entire Payroll & Professional Services team. As businesses grow increasingly global and face complex technology and compliance requirements, we believe that the Payroll & Professional Services business is uniquely positioned to help clients address the many challenges which this creates. We see a tremendous opportunity for continued growth and look forward to working with the team to build upon their success and leadership position in the market.”

– Matt Lozow, Managing Director at H.I.G.

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