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Executing a high-quality benefits strategy is not only table stakes for attracting and retaining employees. It is also complex work, generating strong demand for a range of services supporting employee well-being, engagement, and retention.

Here, bankers from Harris Williams Business Services Group, Technology Group, and Healthcare & Life Sciences Group share their perspectives on the trends and investor opportunities in the sector and highlight Buck Consulting as an example of the sector’s potential.

Key Takeaways

• Rising employee expectations regarding support of their well-being, coupled with labor shortages in many professions, is driving demand for services that can increase employee engagement and retention.

• Industry fragmentation offers substantial consolidation opportunity for both single-service and multi-service platforms.

• There are opportunities for many different kinds of investors and buyers, including those looking at the sector from a services and technology lens.

Employee Retention Driving Demand  

The pandemic shed light on a trend that has been accelerating for decades: Employee expectations of employers continue to rise when it comes to supporting their personal well-being. These rising expectations encompass benefits and other HR services, a trend supporting growth in these areas.  

The continuing supply-demand labor imbalance across a wide range of professions is heightening the focus on employee well-being. As the number of retirees outstrips the population of skilled labor needed to replace those individuals in the workforce, employers are looking to a variety of ways to help employees feel engaged, and therefore, more likely to stay with the company.  

Derek Lewis points out that senior executives across industries recognize that employee well-being and engagement drives personal job satisfaction. This, in turn, drives retention, but solving this issue is challenging. “There is a vast and complicated mix of components that contribute to employee well-being,” he says, “from the employee having passion about the organization’s mission, to total compensation and benefits, to upward mobility, professional and personal life balance and more.”

A Range of Services and Technologies, a Wealth of Opportunities  

These very different topics are usually addressed in equally distinct ways. Some services are technical, such as how to provide the most impactful benefits package efficiently and cost-effectively. Other services are more focused on internal marketing and communication strategies that drive engagement, such as communicating the firm’s value proposition in a way that resonates with employees and helping them understand the impact of their work. There are also consulting companies offering compliance management, employee communications, benefits management, and diversity, equity, and inclusion strategies.  

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This industry diversity and fragmentation offers substantial consolidation opportunity. “Most of these services are sold to the same purchaser, typically the CHRO or CFO, and are intended to drive employee engagement and wellness,” says Erik Szyndlar. “Companies that can build multi-service platforms and present multiple capabilities to a single customer stand to gain marketplace advantage.”  

The market for technology that supports the different areas of employee well-being is also very fragmented. Many point solutions are not easily integrated with other wellness applications, and the complexity and number of benefits offered to employees is higher than it has ever been.  

“Often, employees don’t know which benefits they have, and they cannot find that information easily,” says Martin Keck. “Employees need to understand and use what they are being offered to feel engaged and valued by the company. Technology that can provide an easy, user-friendly interface for employees to see and manage benefits could help tremendously with benefits use and engagement.”  

On the analytics side, there is a large amount of data that can be collected around what employees value, what benefits they think are most important, and what they are opting into versus out of. Consultancies can help capture that data, provide insights to senior executives about which benefits are actually moving the engagement needle, and help drive decision making about the benefits package offered.  

Such dashboards and consultative insights can also provide leadership teams with valuable guidance to design incentive programs for employees. Incentive programs can motivate employees to take certain actions that generate better outcomes and positively impact the bottom line. Examples include participating in a smoking cessation program or undergoing an annual physical examination with a primary care physician. Healthier and more engaged employees can lower the organization’s healthcare costs while boosting productivity.

Employers Taking More Control of Healthcare Benefit Design  

In recent years, the CHRO and CFO have also been putting greater focus on their healthcare benefit design. More employers, particularly smaller and medium-size employers, are shifting to self-insuring as larger employers have for decades to both better manage healthcare spend and deliver better benefits.  

In 2021, 63% of firms with 200-1,000 employees self-insured, up from 50% in 2018 but still well below the level of 87% across large employers.ⁱ This growth has been driven by self-insurance enablers, including consortiums and captives, which allow smaller firms to pool together and drive group purchasing benefits. Once a firm self-insures, it has greater flexibility in plan design and access to innovative cost-containment solutions and member engagement tools.  

While most employers look to self-insure primarily to reduce healthcare spend, self-insuring can also be used as a tool to drive employee retention. “Self-insuring provides flexibility in plan design – for example, an employer may choose to set a deductible for $250 for an emergency room visit but only $50 for an urgent care visit to incentivize employees to visit the lower cost-of-care setting and drive savings for the health plan,” says Nick Owens. “We have seen employers then be able to offer stronger benefits packages to their employees through the savings they generate. A great example of this is Phia Group, a cost-containment company that offers free healthcare benefits to its employees and their families with no premiums.”

Buck: An Exemplar in the Industry

Buck, a recent Harris Williams client, is an integrated HR, employee benefits and retirement consulting, technology, and administration services firm. Its areas of focus range from health, well-being and benefits administration to retirement investments and pensions. The company develops tech-enabled programs that engage employees and drive individual and organizational growth. Buck was recently acquired by Arthur J. Gallagher & Co., a global insurance brokerage, risk management, and consulting services firm. 

Buck’s comprehensive suite of service offerings was a key draw for investors. The company brings health, engagement, and communication services to a broad range of clients and can serve as a one-stop shop for these as well as retirement services. This helps produce high levels of customer stickiness, long-standing client relationships, and regularly recurring revenue. Buck’s services are supported by a proprietary benefits administration software platform, employee-facing HR web portals, and an employer-facing analytics platform.  

Each year, as benefits open enrollment approaches, Buck is well positioned to help clients consider the health and wellness services being provided and how to increase benefits adoption. The process creates recurring touchpoints with Buck’s client base to understand evolving needs and an avenue through which the company can cross-sell or up-sell additional services.  

From its base as one of the leading insurance brokerages, Gallagher launched a strategic initiative, Gallagher Better Works,℠ to expand services to cover a full spectrum of organizational well-being, including health, talent, financial well-being, and career growth. Providing a wide scope of capabilities to its insurance clients helps to deepen those client relationships through value-added services as well as create competitive differentiation. “Gallagher saw the acquisition of Buck as an opportunity to bring employee benefit and engagement services into the Gallagher Better Works portfolio as well as to expand its international footprint,” notes Lewis.

An Open Playing Field

M&A investors are taking note of the employee engagement sector as executives increase their focus on services that contribute to employee well-being and, ultimately, retention. “As you think about all the capabilities needed to address client needs, it’s a highly fragmented market in terms of the service providers that have those capabilities,” says James Clark. “It’s an open playing field in terms of building the capability sets and the delivery mechanisms that clients find valuable.”  

Walker concurs. “This is a space that’s creating opportunities for different kinds of investors and buyers, including those looking at the sector from a services and technology lens. Each could build a platform and apply their area of expertise, whether that’s consulting services, technology solutions, or an integrated offering. Those who can identify and integrate high-performing companies in the most relevant areas stand to gain share with employers and pull ahead of the competition.” 

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