Contact: Brenon Daly
One of the knock-on effects of IBM’s purchase of Kenexa is that a whole swath of capable buyers in the densely populated human capital management (HCM) market has now been erased. We noted that Big Blue’s reach for the HCM vendor followed similar acquisitions by SAP and Oracle over the past nine months, pushing the collective value of the three deals to nearly $7bn.
The acquisitions of Kenexa, SuccessFactors and Taleo effectively take them out of the M&A market. Certainly, they won’t be nearly as active as they had been. Over the past six years, the trio had announced more than 20 transactions with an aggregate deal value of over $1bn. On average, the companies tended to buy about a company each year, adding technology in markets adjacent to core HR functions such as learning management, workplace collaboration and compensation. (For its part, Kenexa has been the most-active acquirer of the three HCM players in recent years.)
In addition to having demonstrated the institutional appetite for acquisitions, the three companies also had the money to do them. Collectively, Kenexa, Taleo and SuccessFactors held more than $400m in their treasuries at the time of their takeout.
And while the remaining publicly traded HCM providers may, likewise, have plenty of cash to go shopping, not one of them has been anywhere near as active as their three rivals that have been snapped up. In fact, if we look at the M&A activity of the next three HCM midcap vendors we see that they have spent, collectively, less than $100m – or less than one-tenth the amount spent by the trio of now-acquired HCM firms.
Saba Software has done just one deal this year, after being out of the market entirely since 2005. Cornerstone OnDemand has only announced a single transaction (a $14m acquisition earlier this year) and Ultimate Software hasn’t printed anything since a $6m purchase in 2006. And a company executive recently indicated at the Canaccord Genuity tech conference that Ultimate didn’t expect to do any deals – certainly nothing sizeable – in the coming months.
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