Transcript
Mark:
Welcome to PeopleTech, the podcast of the HCM Technology Report. I’m Mark Feffer.
Joining me today is William Tincup, the president and editor-at-large of RecruitingDaily. Mergers and acquisitions are an important dynamic in the world of HCM technology, but when a deal happens, we tend to pay the most attention to the money involved and how well the two companies fit together. But there’s more to M&A than that. There’s customer concerns, nuts and bolts, and conflicts of interest that can impact how the new company approaches its business. That’s what we’re going to talk about on this edition of PeopleTech.
Hey William, great to see you. [inaudible 00:00:49]
Tincup:
Always happy to be here, of course.
Mark:
Let’s set the stage. We’re going to talk about M&A in the HR technology space.
Tincup:
Right.
Mark:
What’s going on there right now? Who’s the players? What’s the trends? What do you see?
Tincup:
It’s slow. Normally at this time, especially leading up to HR tech and leading up to the fourth quarter, you see a lot of activity. But it’s really been slow in the last two years. Funding has slowed down and acquisitions have slowed down, and the acquisitions are generally kind of the premises is make versus buy. Someone’s built something, whether or not it’s a feature, a product or a company to be determined. Somebody comes along, a much larger fish, says, “Okay, I like that. We don’t want to build that. You’ve already got 900 customers. Let’s figure out a valuation. It’s usually a multiple on revenue.” And you come to some type of deal and the deal gets done. You stay or you don’t stay.
And every one of the deals is unique in the sense of sometimes they just want the customers. Like when Taleo acquired Vurv, they didn’t care about the technology, they didn’t care about the team. They just wanted the customers so that they could flip them to Taleo. When Altru was bought by iCIMS, they didn’t want to build a video interviewing studio. Altru had already done it and they already had a bunch of great customers on it, so they thought, “You know what? We’ll kill two birds with one stone. They have customers that we don’t and we don’t have to go build a video studio. Done.”
It’s like each one of these things gets unique in the sense of, “Okay, what are they really acquiring? Are they acquiring tech? Are they acquiring the team? Are they acquiring customers? Is it a combination of all those things?” And in every deal for the folks that are being acquired is also unique. It’s its own snowflake, if you will, in that sometimes they’ll stay. Sometimes, founders will stay on. Maybe they’ll stay on until they feel like they don’t need to stay on. Some of it’s in the contract, it’s in [inaudible 00:03:15]. If you have to stay on for the transition period of three months, six months, nine months, 12 months, whatever the bid is. So, every one of them… That’s what fascinating about M&A.
First of all, Sam Thomas, my finance professor in my in-business school, told me one time. He is like, “Here’s the deal about M&A, William. There’s no such thing.”
I said, “Do tell.
And he goes, “There is no such thing as mergers and acquisitions. It’s just acquisitions.”
At one point, someone’s acquired. I mean, it might be marketed at as a merger because it sounds nicer. But at the end of the day, you’re using somebody’s accounting software, you’re using somebody’s HR software, you’re using somebody’s C-suite, you are using somebody’s board. Somebody’s acquired. The merger part of M… The M of M&A is a really kind of a nice way of saying, “You’re being acquired.” Which again, I have friends that have built companies. That’s the goal.
In fact, one of my friends from years ago, he wanted to build a networking company, so outside of the HR space, but he wanted to build a company that to sell to Cisco. And at this time, Cisco had done 125 acquisitions. He flew around the world and met with every CEO that had been acquired and he built a playbook on how to be acquired by Cisco. Then he went out and built technology, and it’s Monterey Networks. He went out and built technology and did all kinds of cool stuff, built customers, and then worked his playbook. And then Cisco came knocking, got acquired.
That was… I mean, now it’s meticulous, but I see the same thing in HR Tech especially serial entrepreneurs where they’ve sold once or maybe twice. They’ve already done the bit, they’ve already done their earn out, and now they usually have a time, a pause where they can’t be in competition. And then they can create whatever they want. What they’re going to do is basically what they did before. They’re going to get it up to a certain size of MRR, ARR, and then they’re going to sell it. They’re not really trying to take it to market like IBM and keep it at market for a hundred years, 200 years, et cetera. They’re trying to get to a certain place where they have enough density where someone else finds that attractive.
But to answer your question simply, it’s just slow. It’s molasses. And you don’t see… Normally in TechCrunch or Crunchbase, you see announcements, especially pre-pandemic, every day. Every day you’d see something in HR Tech in the form of somebody got funded, somebody just grabbed a brand new client or stole a brand new huge client or somebody got acquired. You could literally look at this, the stream, and just go, “Okay, something happened.” And keeping up with it was chaos. Pandemic, all that other stuff, and where we are? Whether or not we’re in a recession or not, doesn’t really matter. The money has slowed down. So, all of the folks that are sitting on funds, whether or not it’s the larger funds or smaller VC funds, they don’t know how to deploy the money. They have money, they have plenty of money. They don’t know how to deploy the money.
So, valuations are down, which means that a lot of the companies, they don’t want to be acquired because this isn’t the… It’s like buying and selling a house, right? This isn’t the time to sell a house. This is also, generally speaking, isn’t the time to raise money. So, it’s slower.
On the run-up to HR Tech, a lot of people do announcements. They might have already been working. They’re working right now in the close period, but they won’t disclose or it’s under embargo and they won’t disclose because they want to do it two weeks or three weeks before HR Tech. We’ll see some of that this year.
Mark:
One of the things you’ve talked about in the past, and you and I have talked about, is when a merger or an acquisition occurs, there’s always an inherent conflict of interest involved. That a company once had a variety of partnerships, all of a sudden they’re just only emphasizing one, which happens to be its new sister company.
Tincup:
Yep.
Mark:
I was thinking, aren’t complications like that obvious from the start? I mean, it’s one of the things you don’t really hear investors and executives talk about.
Tincup:
They have to make a bet, right? The bet is, “Okay, we have multiple partners that we sell through the channel. We’ll take the Appcast, Bayard or RecruitX and KPT.” Whatever the marketing firm was. The idea is at one point, are you agnostic? Meaning, you can work with any agency. As a programmatic technology, you’ve work with anybody, which opens you up to then set up partnerships with all kinds of different people. Or is the bet, if we do this just through one agency, we’ll get more.
And I think the math that’s done in due diligence, because you’re right, it’s not overlooked. It’s not like, “Oh my God, I can’t believe it.” “What? Conflicts of interest? That’s crazy.” No. In due diligence, they’re looking at this and they’re basically saying, “The math is better if we do it through one because we can control it. Even if some of these other folks they peel off and they don’t do business with us, it doesn’t really matter. We’ll be able to go after more customers and go deeper into…” In this case, like a Bayard or KRT. It’s the name of the marketing firm. For RecruitX, we’ll go deeper into their clientele and we’ll be able to make more money there than we would with all these other partners.
But one plus one has to be three, and that’s where I think the due diligence is. When they’re doing the due diligence, it just can’t be one plus one equals two because why would you change anything?
Mark:
Right.
Tincup:
It’s got to be more and that’s got to be the decision. Is it technology? Is it the team? Is it the customers? And are we going to make more money with this strategy? So, I do believe that it is thought of, Mark. I don’t think they woke up and went, “Oh my goodness, I can’t believe we have these conflicts.” I do believe they think about it but I think they think about it and justify it, and maybe rightfully so in the sense of, “Okay, we’re not going to be agnostic but we’re going to make more money.”
Mark:
I would think that in doing that due diligence and plotting out that game plan, you’re thinking about the reaction of your current partners who might just suddenly become pure competitors.
Tincup:
Hundred percent.
Mark:
How do they weigh that? How do they…
Tincup:
They probably punish it and say, “Okay, 50% of our current partners are going to peel off.” Or maybe 75%. They probably punish the number and they basically take that revenue number, whatever top line revenue that came through them, and just punish the number and say, “Okay, that’s what we get left.” They’re not necessarily worried about a new competitor because they believe, and probably rightfully so. They believe that the combination of these two things is a better solution. They’re not doing it just for giggles. They’re doing it because they think that, “Hey, Appcast… All the people at Bayard, now they don’t have to learn 19 different systems. They’re going to be experts at Appcast.” So, they don’t have to… I mean, think about how easy that is now for them to talk to customers because they’re going to be experts at Appcast. And so, they can go deeper, make better recommendations and make more money, increase the footprint and give better service because they only have to know one solution.
I asked Jason Averbook this question years ago when he had a firm. It was a firm that did implementations. And at first when he first started it… It’s Apiiro. I think it was the name of it. When he first started it, they were agnostic. We’ll do 80 implementations. You want to do Cornerstone, Fantastic, ADP, whatever. And then about two years into it, they changed. They said, “We’re Workday, Cornerstone, ADP, and two others.” I think one of them was a learning solution or another type of solution, maybe it might’ve been an ATS.
But they basically said, “Instead of the world being 26,000 vendors, and we’re going to come in and give you the pros and cons of all the 26,000. You know what? We know where the bodies are.” And I remember him telling me this, “We know where the bodies are buried with this particular thing. When we talk to them, we tell them, ‘We’re partners,’ with them. Which means that we’re going to get better service, A. B, we already know where the technology is lacking, so we can navigate that. And if we know it, we can navigate. But if you’re having to relearn that with every new technology, imagine how hard that is.”
So imagine from Bayard’s perspective, they’re people making recommendations to their clients, “We could go with Pando. We could go with RecruitX. We could go with Joveo. We could go with so-and-so.” And each one of those has a different setup. They’re not all the same. So it’s like they’ve now got to be technology experts on 15 different technologies. That particular acquisition made the world real simple. I don’t think that they’ll be recommending all those other solutions because they’re going to go deeper into the technology solution that owns them.
Mark:
There’s a similar dynamic with users, I would think. You merged two companies and one company’s customers are probably going to end up being not so happy because all of a sudden, they have to learn a new product. They have to integrate a new product and they have to have to do all of that. Integrations is such a big part of HR Tech, that user happiness has to be a really big thing to consider, but then you often hear stories about how the users are just pretty much steamrolled.
Tincup:
You said it, the users are absolutely steamrolled. Now what we haven’t factored in, which I think is something we probably should, is that we talk about at EX a lot, but we’ve talked about it a lot on ALS 18 months employee experience. But we don’t talk about the software that they use during the day that creates either a negative or positive experience. EX is tied to technology shifts. So if we’re moving, let’s say, from Ceridian to ADP. And you’ve been working as a Ceridian payroll clerk for 20 years and you know Ceridian inside and out, you can make it bend, and you’re moving to ADP and let’s say it’s a superior solution. You’ve now got to relearn your job and imagine doing that 20 years in. Imagine not doing it a year in, it doesn’t really matter because you’re having to relearn when you had no choice in the matter. Choice was made for you.
And let’s even say the technology is superior, maybe not an equal or a lateral move but it’s superior. You’re getting better, superior technology but you got to learn everything over again. Where’s that button? How do I run that report? How do I connect this with this? The massive amount of what people call, change management. The better companies that do this, they throw change management and training into the mix because they know that the faster that they can get those users to fall in love with new co, the better. It’s like… I’ve never been divorced, so I don’t know anything about it. But what I’ve heard about divorce is the faster that your spouse can get on with their life and marry again, the better for all involved. If your wife, you’re divorced, you go through a divorce, “Okay, done deal.” And she remarries in three years, that’s three years of what will probably torture. But after that, she’s onto her own thing.
So, the metaphor for technology is the faster you can get them to fall in love with the users, to fall in love with new co, the better for everybody involved, because they’ll forget old co. They’ll forget old co not because they’ll just be thinking about new co, but all that takes intentionality. Intentionality on the new vendor to then say, “We’ve got a swoon. We’ve got to get these people on board. Not just onboard them. We’ve got to get them on board to fall in love with us, so their employee experience is great, so they fall in love with us and so they forget old co.”
Mark:
Does that really translate to real action in the real world? I mean, are vendors when there’s a merger or an acquisition, is it your view that the acquiring vendor really does enough to support users along the lines of what you’re saying?
Tincup:
No, not at all. No. They do it in the new sales but not in acquisitions. They don’t. There’s so many things that are done wrong in acquisitions because looking at culture fit, looking at the, “Do the two cultures match?”, how are we going to bring everyone together under new co? Whether or not it’s rebranded or not, but how do we get everybody on the same page, singing from the same page and the [inaudible 00:18:06] lab? All of that stuff isn’t done well. It just isn’t. I mean, that’s across the enterprise software but even in our little corner of the world, it’s not done well. So, are they thinking about users? No, not at all.
I mean, the 1%, possibly. In new sales, when Workday is going to take over an SAP client, they’ve done it so frequently that they already understand data, they already know how to train people, and they do a good job of trying bringing new co into the users and getting to fall in love with it and forget old co. But in acquisitions, they don’t spend the money there.
Mark:
Is there a merger in the HR Tech space that sticks out to you as being really done right?
Tincup:
Wow. I’ll start with done wrong first, and it’s from of no fault of anybody’s other than when SAP bought SuccessFactors, Lars, their founder and CEO was such a dynamic personality. He had a vision for cloud very early on. Very early on, like Mark Benioff at Salesforce. Very early on. I don’t know what happened with SAP or SuccessFactors or Lars, but he didn’t stay that long. And I think if it had SuccessFactors just gave him the keys to the cloud world and just said, “Take the cloud business and go,” we’d be talking more about SuccessFactors than we would be Workday.
That’s the miss. It’s because you had the right… It might not have been the right technology but you had the right person in the right place, the right time, and the right vision. And had you just given the keys to the kingdom and let him go, he would’ve built something that not rivaled Workday but probably was better than Workday, because Workday by and large is PeopleSoft 2.0. It just took something that used to be on-prem and made it in the cloud and did make some improvements, of course. But that’s not revolutionary, quite frankly. It’s more evolutionary. I think Lars would’ve done something completely revolutionary. And I don’t know, some people say that his child got sick or he had to stay all more at home or couldn’t travel as much. I haven’t gotten a straight answer and I’ve asked a bunch of people, but I can tell you that we would be looking at Oracle SuccessFactors or SAP and Workday completely different if Lars were in charge of the cloud business.
So to me, I always look at, especially with visionary CEOs, two years later, “Hey, do you still have the CEO?” One done well is iCIMS bought a company called Jibe, and… I’m trying to think of the guy’s name that’s the CEO. I’ll think of it here. It’s Joel Epstein? That’s not right. So, Joel was running a wonderful CRM play, and it was an early stage in the CRM business. He’s plodding along and he’s got good technology and he is making some really good moves, clients love him and all of that stuff. And iCIMS comes talking and they acquire him. That was over a decade ago. I just saw him at the iCIMS analyst user conference bid and he’s doing… What they’ve done so well is they’ve acquired these companies and then they give the CEO new things to do. What project do you want to work on now? So, it’s almost like creating kind of an entrepreneurial environment inside of a large company. And so Joel’s, he’s literally… Joe Essenfield is his name, sorry.
He’s probably had 10 different jobs. Every time I talk to him, I have to start off with, “What are you doing? What’s your title today?” Because he’s had… And see, to me, that’s how you win. You acquire the technology, you got some customers but you got some really talented Joe. You have a really, really, really talented smart person, and they’ve somehow been able to keep him engaged. I think to me, that’s a win because that person’s could easily go off and create something new or they could create something new inside your company. And I think the smarter plays do that. They find a way, the board, the C-suite, they find a way to keep them engaged because they were running and gunning with their startup, they got bought, they want to manage and make sure that that thing gets sorted. But then, can they keep that person engaged?
For me, the better acquisitions are the ones where you could track back and see that they kept the talent, those talented people. If you can’t keep the talent, I think it’s not as great of an acquisition as it could have been. You didn’t maximize the acquisition. So, Joe is a great example of that. And with iCIMS on opposite side of that, they acquired Candidate.ID, which is a fantastic recruitment marketing, kind of outbound recruitment marketing play. They couldn;t keep the founders. They kept them for a transition period, three months, six months. That’s it. Adam Gordon is one of those guys and Adam’s one of the brightest people in our space. And I’m thinking to myself, “What do you need to do to keep that person motivated inside the company? What do you need? What do you need on labs? What do you need to keep you excited?”
Not just about the company that you built or the company that you joined, but about building something new. Because what entrepreneurs love is there’s got to be a better way and they want to figure out that better way. And I think that, again, looking at those… We just talked about iCIMS in one case of where they’ve done a wonderful job with Joe, and in another case with Adam where… I don’t know the politics or the economics behind the situation. What I do know is Adam’s starting a new company and I guarantee it’s going to be in a similar space. So, what broke down? Why couldn’t we keep him from the iCIMS perspective? That’s what I would look at.
And sometimes you see things that just don’t work. Like with HireVue, they acquired a scheduling software which everyone thought was just a great play, and then they spun it out. So basically, they acquired it, thought that they were going to integrate it with all the things that they did and they probably did, and then they just spun it right back out. And that happens frequently as well. I mean, Brass Ring, which was on its own bought by Connexa. Connexa was bought by IBM. IBM had it for a while. Then IBM said, “We’re not going to… We’ll just spend that out.” Brass Ring is an entity with software Global ARS that’s been around forever. And now, you have a new group of people making really cool improvements to a very old product. But again, that’s been acquired twice. Salary.com was acquired by Connexa, right? Then IBM bought it as well, part of the assets buying the Connexa. Then they also decided they didn’t want to be in the compensation business, so they sold it back to the original owner of Salary.com.
So, you talk about a really funny story. Here’s a guy who builds a really cool compensation play, sells it to Connexa. So, exits. And then they sell it to IBM. Great. Then IBM decides they don’t want to be in the comp business, and they contact him and he said, “Yeah, I’ll do it again.” And here you have Salary.com right now doing great enterprise compensation software work and it’s the original. It’s like you’ve given us our software back, we’ve already gotten paid. Now, we’re going to just go do it again until someone says, “Yeah, we want to buy that.” And they’ll sell it again. It wouldn’t shock me. It wouldn’t shock me in the next year that we’ll see a press release that says salary.com has been purchased by dot, dot, dot.
Mark:
William, thank you.
Tincup:
Sure.
Mark:
It’s good to talk to you and thanks so much.
Tincup:
No worries, my friend. Good time to talk about M&A. We’ll revisit towards the end of the year and see what got done.
Mark:
Okay.
My guest today has been William Tincup, the president and editor-at-large of RecruitingDaily. And this has been PeopleTech, the podcast of the HCM Technology Report. We’re a publication of RecruitingDaily. We’re also a part of Evergreen Podcasts. To see all of their programs, visit www.evergreenpodcast.com. And to keep up with HR technology, visit the HCM Technology Report every day. We’re the most trusted source of news in the HR Tech industry. Find us at www.hcmtechnologyreport.com. I’m Mark Feffer.
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