ADP Automatic Data Processing Inc

Automatic Data Processing Inc. (ADP) recently marked its entry into the lucrative Indian market with the acquisition of Ma Foi Consulting Solutions Ltd, an Indian human resource and payroll management company. The acquired company was previously a part of Ma Foi Randstad, an Indian subsidiary of RANDSTAND HOLDINGS. Though the financial details of the deal were not disclosed, ADP stated that it will incorporate Ma Foi’s 200 associates.

ADP will now manage Ma Foi’s extensive Indian clientele, including both domestic and multinational companies. The acquisition is a strategic fit for the company as it will facilitate further expansion in developing markets. Through this acquisition, ADP will gain access to the growing market of human resource business process outsourcing (HR BPO) in India.

Incidentally, Ma Foi and ADP have enjoyed a healthy business relationship since 2009 for the marketing and operations of ADP Streamline, ADP’s multi-country payroll and human resource service.

ADP’s growth in recent years has been largely attributable to accretive acquisitions, for which it has spent approximately $776 million in 2011 itself. The company reported a year-over-year increase of 11.0% in total revenue to $9.88 billion in fiscal 2011, driven by a 4.7% growth from the acquired businesses.

Recently, ADP acquired The RightThing, a leading recruitment process outsourcing (RPO) provider. The acquisition is expected to expand ADP's human resources business process outsourcing portfolio and complement the existing applicant tracking and talent management solutions, thereby boosting ADP’s customer base and top-line growth going forward.

Moreover, the acquisition of privately held WALLACE is expected to further boost ADP’s tax credit solutions portfolio and expand its customer base going forward.

We believe that the back-to-back acquisitions will drive top-line growth for fiscal 2012 and beyond. The new acquisitions are expected to diversify ADP’s revenue growth base, which in turn will help the company to outperform the market, in our view.

However, increasing competition from Paychex Inc. (PAYX) and Insperity Inc. (NSP) and a gloomy macro outlook in North America and Europe are the major headwinds in the near term. Additionally, higher unemployment rates and low interest rates remain concerns for the company’s payroll processing business.

We maintain our Neutral recommendation on the stock over the long term (6-12 months). Currently, Automatic Data Processing has a Zacks #4 Rank, which implies a Sell rating on a short-term basis.

 
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