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Cardin Sector Report - HR Technology

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Cardin Partners' regularly updated sector report on HR Technology is provided to assist with tracking global capital flows and valuations in the sector.

If you would like an introduction to any company mentioned in this report please contact Andrew Jones at andrew@cardinpartners.com

Published in: Technology

Cardin Sector Report - HR Technology

  1. 1. HUMAN RESOURCES TECHNOLOGY VC / M&A LANDSCAPE September 2016
  2. 2. Overview • This report is provided to assist with tracking global capital flows and valuations in this sector. • If you would like an introduction to any company mentioned in this report please contact Andrew Jones at andrew@cardinpartners.com • This information is provided "as is" without warranty of any kind. Cardin Partners does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained in this document. • Data sources are Pitchbook and proprietary internal research. • Values are in US Dollars. • Scope is global unless otherwise noted. 2
  3. 3. VENTURE CAPITAL ACTIVITY 3
  4. 4. 0 20 40 60 80 100 120 140 160 $0M $500M $1.0B $1.5B $2.0B $2.5B $3.0B $3.5B 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 1M - 4.9M 5M - 9.9M 10M - 24.9M 25M+ Deal Count Venture Capital Invested by Deal Size 2006-2016 YTD Growth stage funding has slowed YTD, following a significant jump in later stage funding due to the market maturing and companies that might otherwise IPO remaining private. 4 All amounts in $USD Growth capital inflows somewhat down, after explosive 2Y run (‘14/’15).
  5. 5. Most Active VC Investors 5 This data only considers deal sizes over $2M. Earlier stage funds are represented primarily due to follow-on investments. All amounts in $USD Investor Name HQ Location Investments in the last 5 years Dry Powder Andreessen Horowitz Menlo Park, CA 20 1,412.70 Accel Partners Palo Alto, CA 19 5,830.30 New Enterprise Associates Chevy Chase, MD 16 2,658.27 SV Angel San Francisco, CA 15 46.70 Lerer Hippeau Ventures New York, NY 15 143.63 SoftTech VC Palo Alto, CA 14 137.80 Bessemer Venture Partners New York, NY 14 2,150.41 GV Mountain View, CA 13 150.45 True Ventures Palo Alto, CA 12 502.32 Redpoint Ventures Menlo Park, CA 12 599.80 Crosslink Capital San Francisco, CA 12 176.79 Kleiner Perkins Caufield & Byers Menlo Park, CA 11 2,711.12 Khosla Ventures Menlo Park, CA 11 668.80 Insight Venture Partners New York, NY 11 3,970.37 Social Capital Palo Alto, CA 10 675.64 Randstad Innovation Fund Amsterdam, Netherlands 10 0.00 Matrix Partners Palo Alto, CA 10 1,545.92 Kapor Capital Oakland, CA 10 Sequoia Capital Menlo Park, CA 9 3,094.86 Norwest Venture Partners Palo Alto, CA 9 698.70 Index Ventures Geneva, Switzerland 9 1,371.39 Foundation Capital Menlo Park, CA 9 455.54 Charles River Ventures Cambridge, MA 9 357.13 Benchmark Capital San Francisco, CA 9 401.06 Battery Ventures Boston, MA 9 1,281.31
  6. 6. Selected Venture Capital Valuations 2015-2016 YTD 6 All amounts in $USD Company Name HQ Location Deal Date Deal Size Post Valuation % Acquired Raised to Date Zenefits San Francisco, CA 13-May-2015 512.57 4,500.00 11.39% 596.17 Gusto.com San Francisco, CA 23-Mar-2016 66.75 1,066.75 4.76% 152.82 Glassdoor Mill Valley, CA 03-Jun-2016 40.00 1,000.00 4.65% 202.21 Lynda.com Carpinteria, CA 14-Jan-2015 186.00 831.25 22.38% 289.04 Glassdoor Mill Valley, CA 06-Jan-2015 70.00 775.00 9.03% 162.21 Fuze Cambridge, MA 09-Feb-2016 112.00 722.74 15.50% 201.00 Gusto.com San Francisco, CA 06-Apr-2015 60.00 560.00 10.71% 86.07 FinancialForce San Francisco, CA 09-Mar-2015 110.00 539.37 22.68% 220.00 Hired San Francisco, CA 01-Dec-2015 40.00 419.58 9.53% 72.98 WalkMe San Francisco, CA 02-Jun-2016 50.00 400.00 92.50 Collective Health San Mateo, CA 20-Oct-2015 81.00 391.67 20.68% 119.00 Checkr San Francisco, CA 23-Mar-2016 40.00 275.00 49.12 HireVue South Jordan, UT 02-Jun-2015 45.00 266.89 16.86% Namely New York, NY 23-Feb-2016 30.00 250.64 11.97% 118.80 GuideSpark Redwood City, CA 10-Feb-2015 22.20 247.89 8.96% 42.20 Greenhouse Software New York, NY 24-Aug-2015 35.00 245.21 13.58% 60.00 PlanSource Benefits Administration Orlando, FL 21-Aug-2015 70.00 245.00 28.57% Justworks New York, NY 03-Mar-2016 33.00 183.01 18.03% 57.52 Namely New York, NY 18-Jun-2015 45.00 181.90 24.74% 88.80 Connectifier Costa Mesa, CA 27-Oct-2015 6.00 125.20 4.63% 12.00
  7. 7. M&A EXIT ACTIVITY 7
  8. 8. Exit Deal Count by # Employees in Target 2010-2016 YTD Employee counts are known for most (but not all) deals, however those missing data are more likely to be in the 0-60 category anyway. Key takeaway: deal activity continues to rise as significant consolidation occurs in the sector. 8 0 10 20 30 40 50 60 2010 2011 2012 2013 2014 2015 2016 YTD 0-60 61-150 151-350 351-1200 >1200 Tremendously active M&A market: 109 deals since 2015; 2016 on pace to match previous year’s record high
  9. 9. Selected Exit Transaction Valuations 2015-2016 YTD 9 All amounts in $USD Company Name Buyer Deal Date HQ Location Deal Type Deal Size Raised to Date LinkedIn (LNKD) Microsoft 11-Jun-2016 Mountain View, CA Merger/Acquisition 29,000.00 Willis Towers Watson Willis Group Holdings 04-Jan-2016 New York, NY Merger/Acquisition 9,277.00 Epicor Software Kohlberg Kravis Roberts 01-Sep-2016 Austin, TX Buyout/LBO 3,300.00 Lynda.com LinkedIn 14-May-2015 Carpinteria, CA Merger/Acquisition 1,500.00 289.04 Sterling Talent Solutions Caisse de dépôt et placement du Québec, The Goldman Sachs Group 09-Jun-2015 Seattle, WA Buyout/LBO 1,100.00 921.45 inContact NICE Systems 18-May-2016 Sandy, UT Merger/Acquisition 940.00 P&I Personal & Informatik Permira 19-Sep-2016 Wiesbaden, Germany Buyout/LBO 900.00 Exact Holding Apax Partners 15-Apr-2015 Delft, Netherlands Buyout/LBO 787.80 Cast & Crew Entertainment Services Silver Lake Technology Management 01-Sep-2015 Burbank, CA Buyout/LBO 700.00 ClickSoftware Technologies Francisco Partners 13-Jul-2015 Petach Tikva, Israel Buyout/LBO 438.00 Saba Software Vector Capital 30-Mar-2015 Redwood City, CA Buyout/LBO 400.00 HealthcareSource HR Francisco Partners 26-May-2015 Woburn, MA Buyout/LBO 330.00 42.12 Reward Gateway Great Hill Partners 07-Aug-2015 London, United Kingdom Buyout/LBO 218.26 VoloMetrix Microsoft 03-Sep-2015 Seattle, WA Merger/Acquisition 125.00 17.00 PayScale Warburg Pincus 08-May-2015 Seattle, WA Buyout/LBO 122.40 133.01 Achievers Blackhawk Network Holdings 30-Jun-2015 San Francisco, CA Merger/Acquisition 110.00 49.33 Talentia Software Argos Soditic 12-Jan-2016 Rueil-Malmaison, France Buyout/LBO 108.68 RiseSmart Randstad 25-Sep-2015 San Jose, CA Merger/Acquisition 100.00 25.15 Lee Hecht Harrison Knightsbridge Adecco Group 11-Mar-2015 Toronto, Canada Merger/Acquisition 63.45
  10. 10. Most Active Financial Acquirers 10 All amounts in $USD Investor Name HQ Location Investments in the last 5 years Dry Powder Existing Platforms Most Recent Conversation w/Cardin HgCapital London, United Kingdom 7 2,020.86 Allocate, Visma, Cascade HR March 2016 Vista Equity Partners Austin, TX 6 6,642.03 PeopleAdmin March 2016 The Goldman Sachs Group (GS) New York, NY 4 Sterling Talent Solutions, Talentwise Lloyds Development Capital London, United Kingdom 4 Cascade HR JMI Equity Baltimore, MD 4 884.65 Kronos, Halogen, CoreHR September 2016 Hellman & Friedman San Francisco, CA 4 11,751.76 Kronos March 2016 Insight Venture Partners New York, NY 3 3,970.37 Workforce Software November 2015 Great Hill Partners Boston, MA 3 893.86 Reward Gateway Charterhouse Capital Partners London, United Kingdom 3 3,916.06 SkillSoft Ireland, SumTotal Systems Veronis Suhler Stevenson New York, NY 2 263.00 Thomsons Online Benefits April 2016 Truffle Capital Paris, France 2 5.04 Horizontal Software Thoma Bravo Chicago, IL 2 9,187.00 Hrsmart Francisco Partners San Francisco, CA 2 2,168.48 ClickSoftware Technologies The Blackstone Group (BX) New York, NY 2 86,036.13 Empower Software Solutions TA Associates Management Boston, MA 2 6,417.07 The Access Group (UK) March 2016 Accel-KKR Menlo Park, CA 2 2,078.01 Infinisource, Qqest Software September 2016 Cinven London, United Kingdom 2 11,087.36 PBJ, Huldt & Lillevik Permira London, United Kingdom 2 10,221.44 P&I Personal & Informatik ABRY Partners Boston, MA 2 3,157.87 Thomsons Online Benefits April 2016 Kohlberg Kravis Roberts (KKR) New York, NY 2 27,458.18 PBJ, Epicor Software Cardin is in active and ongoing dialogue with the consolidators.
  11. 11. Most Active Strategic Acquirers 11 Investor Name HQ Location Investments in the last 5 years Most Recent Conversion w. Cardin Kronos Chelmsford, MA 6 July 2016 SAP (SAP) Walldorf, Germany 5 March 2016 LinkedIn (LNKD) Mountain View, CA 5 November 2015 Paychex Rochester, NY 4 March 2016 SkillSoft Ireland Dublin, Ireland 3 Oracle (ORCL) Redwood City, CA 3 April 2016 Monster Worldwide (MWW) Weston, MA 3 Constellation Software Toronto, Canada 3 Sept 2016 CareerBuilder Chicago, IL 3 Asure Software (ASUR) Austin, TX 3 Visma Oslo, Norway 2 Randstad (RAND) Amsterdam, Netherlands 2 Pluralsight Farmington, UT 2 PeopleAdmin Austin, TX 2 Microsoft (MSFT) Redmond, WA 2 Intuit (INTU) Mountain View, CA 2 March 2016 Horizontal Software Montceau-les-Mines, France 2 Cornerstone OnDemand (CSOD) Santa Monica, CA 2 March 2016 CEB (CEB) Arlington, VA 2 Adecco Group (ADEN) Zurich, Switzerland 2 Xero (XRO) Wellington, New Zealand 1 March 2016 Workday (WDAY) Pleasanton, CA 1 June 2015 Cardin is in active and ongoing dialogue with the strategic buyers.
  12. 12. Public Market Companies 12 All amounts in $USD, as of Sep-28-2016 Sample public market companies for benchmark valuation multiples. Growth rate and unit economics over profitability remain driving factors, but do not attribute as fully explicative. Compound size and illiquidity discounts also apply to private companies. Company Name Enterprise Value Revenue (TTM) EBITDA (TTM) Gross Margin % (TTM) Revenue % Growth (TTM) EV/Revenue EV/EBITDA Workday 15,849,398 1,351,846 (203,893) 68.1% 38.7% 11.7x Paycom Software 2,933,876 284,464 68,916 84.9% 53.9% 10.3x 42.6x Paylocity 2,190,333 230,701 10,323 57.5% 51.1% 9.5x 212.2x Ultimate Software Group 6,147,709 699,725 67,443 61.7% 26.1% 8.8x 91.2x Paychex 21,495,775 2,951,900 1,261,700 71.0% 7.7% 7.3x 17.0x Cornerstone OnDemand 2,548,324 389,470 (33,560) 67.9% 29.3% 6.5x WageWorks 1,783,811 340,990 45,394 66.3% 8.4% 5.2x 39.3x Instructure 477,421 91,880 (46,545) 68.9% 62.1% 5.2x Callidus Software 927,410 189,857 (728) 62.5% 22.9% 4.9x QHR Technologies 110,951 23,042 2,389 75.8% 4.8% 4.8x 46.4x Xactly 398,696 87,017 (15,994) 59.5% 29.7% 4.6x Automatic Data Processing 39,630,045 11,667,800 2,479,100 41.4% 6.7% 3.4x 16.0x HealthStream 700,558 218,572 30,715 57.8% 15.5% 3.2x 22.8x Castlight Health 266,463 87,156 (74,720) 58.1% 42.5% 3.1x Halogen Software 138,453 69,375 (2,304) 75.2% 12.8% 2.0x Monster Worldwide 409,301 634,990 (81,769) 100.0% -8.7% 0.6x Insperity 1,486,206 2,786,037 116,165 16.8% 12.2% 0.5x 12.8x ManpowerGroup 5,679,720 19,536,200 797,800 17.1% -2.0% 0.3x 7.1x Average 5,731,914 2,313,390 245,580 61.7% 23.0% 5.1x 50.7x Median 1,635,009 312,727 6,356 64.4% 19.2% 4.9x 31.1x
  13. 13. CARDIN’S RECENT EXPERIENCE IN THIS SECTOR • In context of currently active sale mandates, we have had recent dialogue with many of the strategic and financially-oriented investors found in this report – Identified 275+ strategic acquirers, and 400+ financial buyers (private equity, family offices, and others), with a stated or demonstrated interest in the HR technology space, and have established contact with key individuals – Actively engaged in dialogue with over 220+ of these parties, gaining a clear understanding of their current filters and investment preferences • Extensive research, along with first-hand communication with many of the players in HR technology, leaves us well versed in the sub-sector, and has revealed some notable themes – The confluence of HCM and fintech innovation: new means for employees to be paid, more often, and with less friction – Increasingly innovative employee performance management and engagement platforms and associated analytics, next-generation ‘holistic’ performance measurement, and complementary BI tools – PE consolidation in the ‘Core HR’ functions of: payroll, time & attendance, employee record management, and benefits admin 13
  14. 14. HOW WE HELP COMPANIES • Corporate Development Services – Positioning and introductions to active strategic and financial buyers, for companies that are not yet ready to sell – Corporate development strategy: review of presentations/models/term sheets, and informal introductions to investors and buyers – Establish a presence on the radar of sector-focused investors / buyers long before you need to run a formal process – may also result in inbound offers – Hourly-based with monthly caps • Capital Raise or Sell-side M&A Advisory Engagement – When it is time to sell or re-capitalize the business through a change-of-control – Full firm resources to: build presentation materials, models, target lists, and execute process to a defined timeline – Retainer plus success-fee based model – market compensation terms 14
  15. 15. HOW WE ADD VALUE • Fully understand unique aspects of technology and market • Build a compelling presentation to maximize value in eyes of the buyer • Analyze buyer universe and develop a synergy thesis for each segment • Handle cross-border deal issues around SR&ED, IRAP, ESOP, etc. • Help manage technical due diligence and negotiate IP reps • Understand “market” deal terms in tech – reducing negotiating time Our technology expertise enables us to: • Build competitive tension in negotiation, even in a single bidder scenario • Project manage deal and keep things moving with legal, board, etc. • Articulate future growth as underwritten by a bottoms-up model • Manage due diligence requests and data room • Offload deal stress and distraction from management Our transaction expertise enables us to: 15
  16. 16. Call Andrew Jones at +1-604-307-3772 E-Mail andrew@cardinpartners.com www.cardinpartners.com

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