Human Capital Management Software Market Overview

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Falvey Partners' latest sector overview covers market trends, recent transactions, active consolidators and market maps of specific companies operating in the human capital management software space.

Falvey Partners' latest sector overview covers market trends, recent transactions, active consolidators and market maps of specific companies operating in the human capital management software space.

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  • 1. PRIVATE AND CONFIDENTIALTECHNOLOGY FOCUS. BROAD REACH. OPTIMAL RESULTS. Human Capital Management Overview Peter Falvey Managing Director peter.falvey@falveypartners.com P. 1.617.598.0437 Jeffrey Monk Analyst jeffrey.monk@falveypartners.com P. 1.617.598.0445 Jeffrey Cook Vice President jeffrey.cook@falveypartners.com P. 1.617.598.0439
  • 2. 2 Human Capital Management Market Remains Active  High-growth sector: Talent management continues to be a priority for executives and is being driven by changes in how enterprises interact with human capital  HR is increasing in complexity: The emergence of social media, collaboration and mobility as enterprises continue to align with the ‘Web 2.0’ world creates more opportunity, but also more challenges, for HR professionals  Highly fragmented market: There is no clear leader in the market, with many point solutions fighting for share, encouraging players to grow through acquisition  Consolidation is starting: Much of the acquisition and investment activity has been directed towards enabling and creating talent suites, as SaaS platforms are emerging as early leaders, a trend we believe will continue in coming quarters The human capital management sector has been one of the most active investment and M&A markets in recent years and we expect the trend to continue
  • 3. 3 $4.35 $4.52 $5.40 $3.15 $3.78 $5.65 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 2011 2012 2016 Talent Management HR Core Market Growth Expected to Continue at Impressive Rate HR core systems will continue to grow even as they mature while emerging talent management point solutions are growing 2x as fast HCM MARKET SIZE  78% of CEOs plan to make changes to talent strategy, according to PwC survey  SaaS delivery is expanding market. More than 90% of talent inquiries relate to SaaS deployments − HR can utilize more solutions for significantly less cost and risk  Social media has transformed how companies recruit talent and how they praise talent, creating an emerging market for sophisticated social tools  Mobile allows talent management to be utilized more frequently and more effectively KEY DRIVERS Source: IDC, Gartner, Forrester, PwC $B $11.1B $8.3B $7.5B 4.5% CAGR 10.6% CAGR 7.4% CAGR
  • 4. 4 SaaS Suite Vendors Dominate the Market Source: Gartner, Forrester Research FORRESTER WAVEGARTNER MAGIC QUADRANT Although the market is saturated with many high profile point solutions, vendors offering suites with depth, flexibility and ease-of-use are viewed as market leaders  Leaders are consolidating to succeed in this extremely competitive market  Focused on SaaS suites with an offering for both performance and learning
  • 5. 5 Talent Management Market Demanding Integration... Source: Bersin & Associates GLOBAL TALENT MANAGEMENT MARKET SHARE With few players holding a significant piece of the market and >50% of the market made up of smaller solutions, there is significant opportunity for consolidation LARGE VENDORS NOT IN TOP 7
  • 6. 6 ...as it is Fragmented Among Three Core Functions TALENT ACQUISITION TALENT MANAGEMENT HR CORE ADMINISTRATION While the market has begun consolidating into end-to-end platforms, the bulk of activity is still happening at the lower end as companies are working to assemble the leading platform across each of the three major functions of HCM  Finding and retaining employees with the necessary skills, experience and cultural fit are key as companies begin to resume hiring in earnest  Emergence of more vertical focused solutions, especially on the sourcing side (i.e. internships, executive recruiting, sector specific jobs)  Primary functions include: − Sourcing − Recruiting − Onboarding  Ensuring that individual performance and goals are clear  Learning management systems in place to fill performance gaps  Succession planning – ensuring employees know the future opportunities available to them  eLearning providers beginning to enter this space as solutions overlap with corporate training functions  Automating the many disparate functions in the human resources department is key  Major Administrative ERP vendors (Oracle, SAP) now witnessing disruption from niche players building platforms and extending capabilities beyond basic functions  Primary functions include: − HR Compliance − Compensation management − Payroll administration − Benefits administration − Time and attendance − Tax filing
  • 7. 7 Many Point Solutions and Few Suite Providers ScaleLargerSmaller POINT SOLUTION PROVIDERS MARKET CONSOLIDATORS Talent Acquisition HR Core Admin Candidate-facing Internal Talent Management Employee-facing
  • 8. 8 HCM Point Solutions Market Map TALENT ACQUISITION SOURCING RECRUITING + ONBOARDING TALENT MANAGEMENT PERFORMANCE + SUCCESSION TRAINING / LEARNING MANAGEMENT HR CORE ADMINISTRATION ScaleScaleScale RECOGNITION / REWARDSPAYROLL / BENEFITS / TAX / COMPLIANCETIME + ATTENDANCE
  • 9. 9 Leading Vendors Creating Suites Through Acquisition The emerging leaders in HCM are vendors who established a large customer base in a targeted solution and have extended that foothold into surrounding HCM solutions by building platform suites via acquisition Heritage Focus Expansion Recruiting Platform Performance Learning Payroll Recruiting
  • 10. 10 Recent Strategic M&A Activity Source: Company Press Releases, SEC Filings, Wall Street Research, CapitalIQ, PitchBook Target Acquirer Date Solution February 2014 Talent search engine February 2014 Online job search portal October 2013 Talent acquisition and management software August 2013 Online training for IT professionals May 2013 Behavioral assessment solutions December 2012 Time and attendance software for SMBs September 2012 Online job search portal September 2012 SaaS social recruiting and networking September 2012 E-learning and talent management content provider August 2012 SaaS solutions for recruiting and developing employees June 2012 Video interviewing platform April 2012 Performance and succession management software March 2012 Workforce management software March 2012 SaaS solutions for organizational change and growth February 2012 On-demand talent management software February 2012 Workforce management February 2012 Workforce training software = Falvey Partners acted as advisor: case study and process overview in rear of book
  • 11. 11 Recent Investment Activity Target Date Amount / Total Raised Investors Feb 2014 $750M (Recap) Blackstone, GIC Feb 2014 $20M / $26M General Catalyst, KPCB Feb 2014 $11M / $25M Accel-KKR, Norwest Venture Partners Jan 2014 $4.5M / $9M Undisclosed Oct 2013 $16M / $63.8M Starvest, Morgenthaler, Scale, C&B Capital, Intersouth, others Oct 2013 $25M / $53.5M Sequoia Capital, ICG, Granite Ventures, Peterson Ventures Sep 2013 $20M / $27.7M Highland Capital Partners Aug 2013 $10M / $15.5M Rembrandt Venture Partners, The Mayfield Fund Aug 2013 $16M / $203.5M Foundation Capital, Azure Capital Partners, Intel Capital, Others Aug 2013 $2M / $3M IrishAngels Jul 2013 $2.1M / $2.1M Venrock, Maverick Capital, Andreessen, General Catalyst Jul 2013 $1M / $1M Andreessen, Kapor Capital, Founder Collective, Greylock Jul 2013 $7M / $11.7M Edison Ventures, Carmel Ventures Jul 2013 $5.3M / $8.2M Atlas Venture, Google Ventures, NextView Ventures Jul 2013 $1.5M / $2.3M MMC Ventures Source: Company Press Releases, SEC Filings, Wall Street Research, CapitalIQ, PitchBook
  • 12. 12 Recent Investment Activity (cont.) Source: Company Press Releases, SEC Filings, Wall Street Research, CapitalIQ, PitchBook Target Date Amount / Total Raised Investors Jul 2013 $2M / $4.5M Lightbank, NEA, Foundation Capital, Funders Club Jun 2013 $20M / $20M Emergence Capital Partners, Social+Capital Jun 2013 $3.5M / $3.5M Battery Ventures, Menlo Ventures Jun 2013 $25M / $25M Undisclosed Jun 2013 $4M / $6.5M ARTIS Ventures, Subtraction Capital, Kapor Capital, others Jun 2013 $3.4M / $5.1M True Ventures, Lerer Ventures, Bullpen Capital Jun 2013 $2M / $2.4M Cayuga Venture Fund, Rand Capital May 2013 $15M / $24M Summit Partners, Foundation Capital May 2013 $10M / $21M SoftBank Capital, Spark Capital, Union Square Ventures May 2013 $6.5M / $6.5M Mainsail Partners Apr 2013 $5.5M / $6.5M Capital Indigo, Enzyme Venture Capital, others Apr 2013 $5M / $5M Boathouse Capital Apr 2013 $1.3M / $1.3M Andreessen, KPCB, Khosla Ventures, SV Angel, Others Mar 2013 $7M / $8.7M Grandbanks Capital, Relay Ventures Mar 2013 $19M / $47.4M Scale Venture Partners, Morgenthaler, Intersouth, Harbert
  • 13. 13 MindLeaders is a leading provider of e-learning solutions with integrated talent management capability, and the number two vendor of “off-the-shelf” e-learning content globally. MindLeaders’ products and services include e-learning content, talent development, learning services and social media e-learning courses. Its solutions are delivered over the web via a Software-as-a-Service (“SaaS”) model. MindLeaders’ heritage in the technology-enabled learning space spans over 30 years, and over this period it has developed a library of over 3,600 e-learning courses and built strong expertise in instructional design. MindLeaders has over 1,150 direct customers across industry verticals such as care, hospitality, public sector and financial services, amongst others. Headquartered in Ireland, it has established a strong presence in the US and UK, and has been expanding its operations in the Middle East and APAC. Client Situation Solutions Results  Drove a highly competitive, focused marketing process to determine interest and potential valuation parameters  Worked with management team to develop extensive marketing materials, determine appropriate buyer outreach and build out a full data room to streamline the diligence process  Large international component to the transaction which needed to be actively managed  Founder/chairman looking to diversify his personal holdings and decided now was the appropriate time to sell the MindLeaders business  Concurrently, the Company received an unsolicited offer from its closest competitor, the largest player in the e- learning segment - initial unsolicited offer was not satisfactory  Confidentiality and sequencing of information flow was extremely important given the highly competitive nature of the segment  Approached 47 potential buyers – both strategic and financial  Held 11 management meetings in the US, UK and Ireland  Received four indications of interest from both strategic and financial buyers  Negotiated extensively with the eventual buyer and the buyer’s PE investors  >100% valuation improvement from unsolicited bid to final purchase price Case Study: MindLeaders – Sale to Skillsoft Has been acquired by A portfolio company of September 2012
  • 14. 14 MindLeaders Process Overview Number of Companies / Firms Reached Out To Companies Contacted 47 Number of Management Meetings Number of Parties Submitting Letters of Intent  In order to maximize value and generate additional options for shareholders, the Falvey Partners team ran a focused process in a timely manner inclusive of both financial and strategic buyers, resulting in 5 LOIs  The team was able to identify and approach highly relevant parties and get to market quickly and delivered LOIs in less than two months  Streamlined an intense diligence process which included workflow from the eventual buyer, their board, three private equity firms and lenders to close in a timely manner Meetings 11 LOIs 5
  • 15. 15 Falvey Partners Snapshot FOCUS SELECT, RELEVANT TRANSACTION EXPERIENCE December 2011 Has acquired July 2012 Has been acquired by September 2011 Series D Convertible Preferred Stock led by September 2012 Has been acquired by A portfolio company of July 2011 Has been acquired by a portfolio company of April 2011 Has been acquired by July 2011 Has been acquired by February 2011 Growth equity investment from November 2010 Has received an investment from A portfolio company of October 2010 PGI Notify and Send platforms acquired by August 2010 Series C Convertible Preferred Stock Led by SERVICES  Sell-side or buy-side M&A  Growth capital raising  Board and corporate advisory SECTOR  Software / SaaS  Tech-enabled business services  IT services  Internet / digital media COMPANY TYPE  $50M - $250M in enterprise value  Growing, with established scale  Profitable or near-term path to profitability We are an entrepreneurial investment banking firm focused exclusively on capital raising and M&A for leading software companies  Founded in 2012 by Peter Falvey and key members of the Morgan Keegan / Revolution Partners team  Falvey Partners professionals have closed dozens of software transactions representing billions of dollars in transaction value December 2012 Strategic Minority Investment from July 2011 Strategic minority investment from May 2014 Has been acquired by April 2014 Growth equity investment from July 2011 Has been acquired by March 2011 Has divested its diagnostic solutions unit August 2010 Two divisions have been acquired by a portfolio company of