I’ve been involved directly and indirectly in M&A in some form or other throughout my career. I remember one bank buying another bank in the middle of an HR systems project I was on, that was fun.
Over the last year or two, I’ve developed part of my business advising those buying and selling HRTECH companies
Generally, HR leaders understand the impact of M&A when the companies they work for are bought or sold. Post merger integration is a major element of M&A success and failure, and HR’s role is key. Have a look at Tim Galpin’s research on M&A. M&A isn’t easy, and too often it is a failure.
So, banks buy each other, steel companies buy each other, and increasingly, software companies buy each other. The wave of consolidation in HRTECH is underway.
Odds are, will happen to the vendors of products you use.
Have a look at Venero’s recent report for some stats on M&A in HRTECH.
Highlights:
- $45.5 billion in disclosed M&A value
- Median valuation: 8.6x EV/Revenue
- $8.8 billion of capital raised
- $20M average investment size (vs. just $7.6M in 2016)
Recent examples include Workday / Peakon, Cornerstone / Saba, ICIMS/Easyrecrue. Salesforce/Slack, ServiceNow/ Element, Sympa /Recruitee and just last week Xero /Planday.
This post is not aimed at those buying and selling HRTECH companies, it is aimed at the HR professionals and organisations using HRTECH. I’ve seen many HR leaders fail to effectively manage the positive or negative impacts when one of their vendors is acquired or acquires.
I’ll focus this on the scenarios when your favourite niche vendor gets acquired by a larger suite software vendor.
At least once a year, HR leaders should list out all their niche vendors, and estimate the likelihood that they will be acquired or not in the next 12 months. While you will probably guess wrongly, the effort of prediction will mean you prepare yourself for the possibility.
Remember, at some point most of the niche vendors you use will be acquired, or have some sort of significant financial event (good or bad). Heck, even your suite vendor might get acquired.
In this case, you are in a strong position. Take advantage of the period between announcement and acquisition to negotiate any renewals etc. Usually acquired products become more expensive once acquired by the suite vendors.
Here’s what you could do right away:
|
Survey / engagement |
D&I |
Performance management |
Workday |
Weak |
New (mainly North American) |
Established /mature |
Peakon |
Strong |
New (mainly EMEA) |
Experimental / innovative |
In that case, you might have a problem. In the short term don’t panic, but the longer term attention won’t be on your needs, or on integration with your key vendor.
Here’s what you could do right away:
In both cases, look at past track record of the suite HRTech vendor. How did the suite vendor manage its last acquisition? Check with other companies. Have a look in Linkedin and see who is still there a few years later.
With any acquisition there will be changes. The changes in the product teams will take time to have an impact on the product, but support and sales often have high turnover post acquisition as people may suddenly have stock options vest, or don’t fancy working with the big co. Don’t assume your friendly niche account manager will be there forever.
Always be expecting your cool niche vendors to be acquired. It is where we are in the cycle. Plan for it, and you will be so much better off than those who don’t.
Disclosure. Workday, Peakon, Easyrecrue/iCIMs, Sympa/Recruitee are Otter Advisory Clients.