September 18, 2014

M&A Activity Expected to Continue in HR Tech

Technology to help manage HR in enterprises is nothing new. Payroll technology initially took hold in the 80’s (i.e. Teseract) and Peoplesoft dominated the client server market for HR systems in the 90’s. The Peoplesoft legacy continues but under the banner of Workday, the leading SaaS platform for Human Capital Management.  

Much of the past decade in the sector has been focused on services including complete outsourcing of the HR function and moving from client server to SaaS platforms.  Functionality has also been significantly enhanced, particularly around managing talent. These talent management suites are focused on helping organizations attract, grow and retain its talent leading HR platforms to become much more integral to driving business as opposed to just a back office record repository.  This focus on talent is driven by several factors but chief among them is the recognition that people and culture are meaningful differentiators for businesses.  These suites have been built out with the help of funding from Private Equity including Insight Ventures investment into WorkForce Software, Frontier’s investment in JobApp Plus and Highland Capital Partners investment in TalentSoft.

The large ERP vendors have also been active in acquiring these next generation HR Suites including SAP’s acquisition of SuccessFactors and Oracle’s acquisition of Taleo.  This remains a fragmented market so we expect consolidation to continue. While we certainly expect innovation to continue to deepen these talent management suites, particularly around analytics, we see evidence of the next stage of maturation in the market towards vertically oriented solutions.

As expected, we are seeing this initially in service heavy and highly regulated industries including financial services, life sciences, public sector and healthcare. We expect funding activity to fuel this trend towards vertical specific applications and M&A to follow soon thereafter. Regardless, managing talent is becoming increasingly important and as this market continues to evolve, M&A activity will continue to dominate the headlines.