Fidelity Investments has announced plans to buy a software development company that provides learning management systems as the fund giant looks to broaden the capabilities of its big human resources outsourcing business.
The Boston company said Thursday that it had entered into a nonbinding letter of intent to buy Teds, an Atkins, Va., software development and consulting company that supplies learning management systems and performance management and work force management products and services.
The companies said they are negotiating definitive agreements for the purchase. The transaction is expected to close by yearend.
Fidelity would operate Teds as an independent business unit from the latter’s Virginia offices. The company would be integrated with Fidelity’s other human resources outsourcing units. In October, Fidelity announced it had bought the global human resources and payroll software applications of IBM Corp.
Caroline Boyd, a senior vice president at Fidelity Employers Services Co., said the deal would let Fidelity extend its integrated human resources outsourcing services into the emerging market for outsourced learning and training administration. Fidelity supplies human resources administration and employee benefits solutions to more than 16 million employees in more than 11,600 retirement, pension, health and welfare, payroll, and stock programs.
“As we look across the outsourcing services we provide, we saw that this allowed us to bring training services to the market,” Ms. Boyd said. “We want to deepen the solutions we have here. We want to broaden them a bit and be effective in integrating everything.”
Fidelity has spent eight years developing Fidelity Employers Services Co. to supply pension and retirement services, health and welfare plans, and human resources capabilities. The unit was formally started in 1998 and has agreements with 176 companies nationwide, with four million employees.
Peter J. Smail, the unit’s president, said in an interview this year that he expects it to contribute half of Fidelity’s revenue within 10 years. Its share of the parent’s revenues last year was one-third, or nearly $3 billion.
Ms. Boyd said, “In the industry in general, there is more pressure for companies to focus on their core businesses. People want to do things efficiently and effectively. We are seeing now that people want integration of outsourcing services. They want a total solution.”
More than 90% of U.S. companies outsource some functions in an effort to reduce overhead and risk exposure, according to a study released Feb. 12 by Cutting Edge Information, a Durham, N.C., research company.
Gartner Inc., a Stamford, Conn., research and advisory firm, reported last winter that employee benefit outsourcing is a $27 billion industry in the United States. It predicted 15% annual growth through 2005.
More companies are trying to offer total human resources outsourcing to take advantage of this. Hewitt Associates Inc. in Lincolnshire, Ill., and CitiStreet, a Quincy, Mass., joint venture between State Street Corp. and Citigroup Inc., are among the older competitors in benefits outsourcing. More recently, large banking companies like Mellon Financial Corp. and small firms like California’s Exult Inc. have entered the marketplace. But none has accrued the revenues that Fidelity has.
