-by Thomas Rasmussen, Brenon Daly
Rather than hitting the public markets, Authoria has landed in a private equity (PE) portfolio, where it is slated to serve as the initial plank in a rollup in the fragmented human capital management (HCM) market. PE shop Bedford Funding picked up Authoria last week, after checking out the market for about a year and a half. (The guys behind Bedford know a thing or two about market consolidation. Before hanging out a shingle with their $400m buyout fund, the Bedford directors and principals served as executives at ERP rollup Geac, which gobbled up dozens of companies before getting swallowed in a $1bn LBO.)
Its experience with ERP consolidation will likely come in handy for Bedford because we have noted a number of times that the current HCM market – with more than 50 startups, along with three or four large vendors – bears more than a few similarities to the ERP market earlier this decade. The ranks of ERP companies were thinned quite a bit as both strategic and financial acquirers went on shopping sprees. (Oracle, Microsoft and Lawson have all inked significant ERP acquisitions this decade, while PE-backed Infor and Consona got their ERP rollups started in 2002 and 2003, respectively.)
We suspect a similar wave of consolidation may be heading to the HCM market, which covers all the stages of hiring, from pre-employment screening to succession planning. And it’s not a bad time to be a buyer, since HCM valuations are coming down. (Authoria sold for about 1.3x its trailing sales, just half the level Vurv Technology got in its $128.8m sale to Taleo earlier this year. Granted, that’s only one data point, but we’ve heard from sources that the markdown of multiples is being seen across the sector.) Given that, along with Bedford’s stash of cash, we expect the rollup to get rolling very soon. What might it be looking for? Maybe a small vendor that could bolster Authoria’s offering around the early part of the hiring process, such as talent acquisition or screening.
Significant HCM deals since 2007
|September 29, 2008
|September 16, 2008
|June 9, 2008
||US Investigations Services
|May 6, 2008
|December 21, 2007
||Kohlberg Kravis Roberts & Company
||Northgate Information Systems
|February 4, 2007
||Infor Global Solutions
|March 23, 2007
||Hellman & Friedman
Source: The 451 M&A KnowledgeBase *Official 451 Group estimate
Once thought to be just part of the broader ERP offering, the so-called human capital management (HCM) market has come into its own in recent years. That has meant a few IPOs (going back to when there was a market for the offerings) as well as two or three HCM deals each year worth more than $100m. Recently, those twin threads came together in HireRight. The $195m acquisition of that company, which sells pre-employment screening software, closed earlier this month, almost exactly a year after the company went public.
In addition to the acquisition of HireRight by a private company serving the US government, we also noted one of the largest deals for market consolidation earlier this summer when Taleo spent $129m for longtime recruiting software rival Vurv Technology. (As opposed to consolidation, earlier HCM deals were typically done as a way for the acquirer to get into new markets or expand its product portfolio, such as outsourcing giant ADP spending an estimated $160m two years ago for Employease, an on-demand HCM vendor focused on the midmarket.)
So what does HCM deal flow look like for the rest of the year? Salary.com, which picked up a small British firm on Tuesday, has indicated that it plans to ink another deal or two before the year is out. Salary.com went public last year and has done two deals since then, including this week’s $5m purchase of InfoBasis.
More intriguing, however, is the rumor we heard from two market sources that PreVisor, a PE-backed HCM vendor selling employee screening and testing software, is looking to sell. The company was formed in August 2005 through the combination of three companies, and it has done a handful of acquisitions since then. There is no initial word on who might be bidding on PreVisor, which is owned by Veronis Suhler Stevenson.
HCM deal flow
Source: The 451 M&A KnowledgeBase
After sitting out an earlier wave of consolidation of on-demand human capital management (HCM) vendors, Taleo will spend roughly $129m in cash and stock for rival Vurv. The deal would double the number of customers at Taleo. The acquisition values Vurv at roughly 2.8 times trailing revenue, a bit lower than other recent HCM transactions. In mid-2006, three comparable deals got done at roughly 3-5 times trailing revenue and Taleo itself trades at about 3.7 times trailing sales. Since the consolidation wave hit the HCM sector two years ago, we have heard that Vurv was being shopped several times.
However, we would note that Taleo and Vurv have a fair amount of overlapping technology, particularly in the offering around employee recruitment. A similar transaction by the one-time HCM market darling, Kenexa, caused a number of integration headaches, which landed it in the penalty box on Wall Street. Kenexa shares currently change hands about 25% lower than they did in October 2006, when it grabbed ahold of BrassRing for $115m.
Significant HCM deals
||Target TTM sales
*Official 451 Group estimate. Source: The 451 M&A KnowledgeBase