Value creation in the employee benefits sector
By Fabian Neuen
Supporting employee benefits-providers to sharpen their strategy and achieve profitable hyper growth
Employee benefits help enhance employer branding, recruiting & retention rates, as they provide a tool for employers to offer additional perks beyond base salary. They are significantly driven by tax benefits and encompass various subcategories: popular offerings include meal & fuel vouchers, sports and bike leasing.
At the same time, a large array of new benefits is emerging and caters to companies’ needs of providing more individual & emotional benefits to their staff and support them during their most important life stages. This include mental wellbeing, employee assistance programs, fertility benefits, and devise leasing.
"As employee benefits segments converge, we support benefits providers in sharpening their value proposition and consolidating the market."
As segments converge, new strategies are being required
Historically the European employee benefits market was dominated and shaped by meal & food vouchers as well as fuel & gift cards. During the past two decades, additional segments emerged and have outgrown incumbent providers.
Looking at the supplier side, new giants are on the rise. Many of the employee benefits-providers achieve impressive economics: close to zero churn, recurring B2B revenues and strong double-digit EBITDA margins, to just name a few.
Obivously, this trend has been closely observed by financial investors, such as venture capitalists and private equity funds. These investors commit increasingly large funds to this sector, flooding benefits-providers with virtually unlimited financial means for both go-to-market and M&A purposes.
Demand-wise, an increasing shortage of (skilled) labor in many European countries forces employers to provide benefits to their employees for enhanced employer branding. In other words: providing an increasing variety of benefits becomes a survival strategy for many employers in order to continue attracting & retaining top talents. As HR departments ramp up their benefit stack, they also consider additional strategic goals beyond recruiting & retention, such as: Employee satisfaction, ESG and productivity goals.
Given that most corporates and SMEs have one buying center for all benefits and given that benefits providers have been strongly growing their customer base, two key ingredients are in place for growth synergies, if benefits providers would opt for a portfolio enhancement strategy.
With their proven and scalable business models in place and backed by powerful investors, portfolio enlargement turns out to become a key growth strategy in the segment, mostly through M&A. The idea is to then leverage existing customer portfolios to cross-sell different offerings. Whilst this pattern is already very visible in the Nordics, in Benelux and in the DACH-region, we expect market leaders to pursue this playbook approach across Europe.
We understand that all players face different starting conditions, depending on their subsegment, geography and maturity. We embrace this situation through our signature wargaming-approach that is tailored to the employee benefits industry.
Based on game theory, our wargaming workshop’s interactive approach allows management & investors to immerse into relevant market, regulatory & competitive trends and derive the most suitable guardrails for their future strategy & value proposition.
With M&A being a key value creation-lever in this industry, we have a strong track-record in transaction support, be it on the buy-side (e.g. through market landscaping & commercial due diligences) as well as on the sell-side (e.g. through commercial vendor due diligence or a full-fledge sales process-mandate).
Additional value creation-levers for employee benefits providers typically include pricing, a (digital) go-to-market strategy as well as IT excellence & target operating models to ensure swift and profitable scaling of own operations.
Thereby we acknowledge differing needs between market leaders and runners-up, respectively smaller-sized companies. Thanks to fact that performance improvement is deeply rooted in Roland Berger’s DNA, we will find and apply very pragmatic solutions to all benefits providers.
Our proven track record
Being a thought leader in the employee benefits-space, we constantly investigate the market segments and identify trends before they become mainstream. Thanks to Roland Berger’s extensive network and track record across all employee benefits-subsectors, ranging from meal & food, gifts, mobility, health and financial support, we can provide our clients unrivalled insights into the different market segments. This allows us to support our clients both on the strategic level as well as in implementing respective strategies, whilst cutting unnecessary corners and getting straight to value creation.
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