The market just keeps getting hotter and hotter for mergers and acquisitions and everyone is talking to everyone. It should be very interesting to see who ends up on top, but one thing is for certain - evaluations are peaking and I am starting to see some people who have very inflated egos and outrageous expectations. And I am reminded that it takes a lot longer to walk up a mountain than to fall down one. One bad acquisition, one major security breach, one major bad release and you can lose your mojo and spend years recovering it. So although time to market and speed are essential, be careful as 85% of mergers and acquisitions do not work. It seems like it is a race, with all types of vendors heading in this direction.
Whether it be staffing firms like Beeline building out their suite, people like Authoria and Kenexa adding partners and acquisitions to their suite, industry giants like ADP and Kronos adding best-of-breed vendors to their portfolio or best-of-breed vendors looking to expand their product line by developing technology in-house or acquiring it to get to market faster, all of this - plus the healthy returns from investors - is making this one hot space.
Employease and ADP
We first of all want to congratulate the Employease team. Phil Fauver, Chief Executive Officer, Mike Seckler and the team did something many people in this industry have not achieved. They never gave up. Having deep roots in Peoplesoft, they raised significant funds in the 90´s, and set out to create a self-service fully web-based HRMS system that would be easy to use and have little or no dependence on IT . To say the uptake was slow would be optimistic. People did not flock to their website, put in a credit card and start using the system. In fact, the opposite occurred. They went to the website, thought there was no way that would work and probably left. Employease invested significantly in hiring a quality sales force and business development network and set out to establish a number of premium resellers and clients. One of the first to truly offer software as a service on a cost per employee per month, the revenue scaled slowly at first and then compounded year after year as the product matured and continued to develop. First predominately record keeping and benefits administration, they started adding apps like talent acquisition. When things got tough in the post dot-com bust and they needed more money, their tier 1 VC´s did not pony up advice or extra funds, so they went through a series of cutbacks and into survival mode. (In retrospect this was the best thing they could have done as they would have had to sell the majority of the firm for the capital they needed). When the economy turned, web2.0 became a reality and their resellers/partners kicked in, sales grew substantially and things really improved for them.
Then came ADP. The partner that could kill them or break them. A dating arrangement for over 12 months led to the recent acquisition of Employease by ADP. This is a great move for ADP as it now has a full web solution that can scale to all their account sizes. It can handle their smaller clients as well as their larger accounts. With ADP´s huge distributed sales force the challenge will be getting all these account reps up and trained on the product and conversion for the older system. If ADP executes properly, they could become the world´s largest HRMS vendor in addition to the largest payroll vendor. To Phil and the gang, congrats on an awesome exit and congrats for never giving up your dream. They say that in order to be a successful entrepreneur you have to have the vision, the commitment to execute, time and luck. You managed to have all four in the time you all ran Employease.
Although financial terms of this deal were not announced, we believe the multiple was well above industry norms for software as a service, somewhere in the five to six times sales.
ADP is definitely the market giant. There are lots of rumors around that they will quickly gobble up Virtual Edge (Talent Acquisition + Vendor Management). If they continue on this path they could very well be one of the market leaders in offering a comprehensive suite of Human Capital Management products and services.
The worst kept secret at HR Tech was of course the pending acquisition of BrassRing by Kenexa. This was announced on Friday. One of the largest deals in the HCM space, valued at $105 million + $10 million in cash, this alleviates the common misconception that Kenexa only plays in the mid market. They do not. With this acquisition they will be the first Best-of-Breed vendor (other than Kronos) to reach $100 million in revenue. As Nicole Stata of Deploy indicated... everyone is in the water swimming. There is no one left on the island. This of course means everyone is in play.
Of course, the other industry leader is Kronos, predominately time and attendance but workforce scheduling has also been adding to their product line with additional time and attendance acquisitions, metrics (Clarity Matters) and most notably Unicru, the leader in the hourly recruitment market.
One of the vendors that does have a suite of tools for performance and learning is IPS, Integrated Performance Management Systems. Their recent acquisition by Beeline/Modis makes Beeline the first staffing firm to enter into the arena of building out a talent management portfolio. What makes this so interesting are a couple of things:
1) That it is the first staffing firm to enter this space.
2) The code base from IPS is co-owned by the people at Select International. These ex-DDI guys use this code to run their RPO and selection business. Although they have traditionally bundled their services with the software, look for them to expand their product line.
If a vendor is looking to build out their product offering they have several options.
1) Buy a vendor - with evaluations heating up many will be looking outside the US for players who have revenue and international clients with a solid technology platform.
2) Partner with a provider: this is always problematic. Is there enough revenue in it for all partners? Unless there is significant customization, change management, or consulting opportunities, usually the revenue model will not work.
3) Private Labeling a solution: this once again comes in two flavors -
a. Pure private label where you take a copy of the code and build out from there. Usually, you only pay a one-time fee.
b. Private label but keep the relationship with the vendor so you have access to continual product improvements and new releases.
Players that are currently doing this include:
HRSmart: by far the most comprehensive product offering, Mark Hamdan will sell you a one-time copy of the code, or a revenue share on licenses (this comes with future product development). They have relationships with firms like EDS, IBM, and HRLogix, to name a few. You can work with a single module (Succession Planning or the entire suite). Their latest deal has Monster private labeling the entire suite and offering it to their mid-market clients. This is a brilliant move from both Monster and HRSmart. HRSmart validates their software as a robust scalable model (often referred to by their clients as a Rolls Royce system priced as a Volkswagen Beetle) and gives them access to a large distributed sales network. For Monster it offers incredible value for their clients.
HRAlloy: relatively new to the game, they are the back end provider for many of the consulting firms in the industry such as Right Management.
If you know of other vendors willing to private label their products, please let us know.
Others news includes ...
Monster is selling their recruitment advertising business to a private equity firm and senior management. Led by industry veteran Michelle Abby, look for a resurrection in the recruitment advertising business as they can now focus solely on supplying these products and services to the industry.
CapitalH buys Peoplematters their first entre into the technology space.
Pearson Performance Solutions Bolsters Succession Management Offering
Through Alliance with Fifty Lessons
iCIMS, a leading Software-as-a-Service (SaaS) provider of Web-based Hiring Management Solutions, today announced that the company has formed a marketing alliance with Human Capital Resources, LLC (HCR), a software company specializing in Employee Performance and Salary management solutions.
SkillSurvey, Inc., the leading provider of intelligent web-based reference checking solutions, today announced a partnership with Pinstripe, a leading recruitment process outsourcing (RPO) and recruitment services firm. Effective immediately, Pinstripe will offer SkillSurvey´s online reference checking solution as a recommended best practice in the recruitment and selection of top talent.
Cytiva Software Inc. (CRX:TSX-V), a leading provider of mid-market talent acquisition solutions, and Walton Management Services, Inc. (WMS), a leading business financial incentives services firm, providing incentives screening services, announced the availability of a strategic relationship allowing SonicRecruit clients to take advantage of the Work Opportunity Tax Credit (WOTC) and Welfare to Work (WtW) tax credit programs and capital expenditure, workforce, and location-based incentive programs.
SuccessFactors, Inc., the leader in on-demand performance and talent management solutions, and Personnel Decisions International (PDI), a global leader in human resources consulting, have partnered to deliver talent management initiatives that measurably drive corporate business goals and results by blending market-leading, on-demand technology with the world´s premier integrated competency architecture. For the partnership´s initial offering, Performance Framework, SuccessFactors Edition (SFE), PDI specifically tailored its content to be utilized most effectively within SuccessFactors´ technology. This offering includes pre-packaged, level-specific models that reflect organizational roles ranging from individual contributor through senior executive. Performance FrameworkSFE incorporates performance measurement and fuels development across all levels of an organization, enabling customers to quickly and effectively implement talent management initiatives, aligning employee efforts with corporate goals.
