Over the last decade, there has been a noticeable increase in the investment dollars that have been flowing into the HR Technology space. We can thank our long-lost friends at Zenefits for much of that activity. They brought a lot of eyeballs and greenbacks to our industry – some good, some bad. However, no one can deny that they served as an incredibly visible trigger point for much of this investment activity.
While there has been a good bit of M&A activity throughout the 2010s, there has been a noticeable uptick in the number of investment deals within the last 12 months. Furthermore, many of these deals have involved some of the larger organizations within the HR tech space with Ultimate Software pulling out of the NASDAQ and moving to a privately held organization via Private Equity (Hellman and Friedman) dollars and PlanSource recently going through another round of Private Equity funding. There are also a number of deals that are in the works and will be announced soon (based on the tea leaves I’m reading and the rumors I’m hearing).
With many of these deals in our rearview mirror and several more arising on our horizon, you may be asking yourself, “What does all of this market activity mean for my agency and what does it mean for my clients?” We believe that there are several things you should be considering and aware of in light of all of this activity.
- Market Noise/Market Activity/Market Churn – Any time you find market activity, you’ll find market churn or at least attempted market churn. Most all successful sales people, regardless of industry, leverage FUD (Fear, Uncertainty, and Doubt) to their advantage. If you’re being honest with yourself, you have too within the insurance industry. If a competing agency in your town is purchased by another agency or takes on Private Equity – your immediately begin calling clients of those agencies to try and convince them that “things just won’t be the same” and “there will be some rough waters ahead during the integration of ABC Agency into XYZ Agency.” HR Technology sales people are no different. This means that your clients are being approached or will soon be approached by an HR Tech sales person telling them that Ultimate has lost their way and that PlanSource can’t continue to take on PE money without losing focus. It is your responsibility, as their trusted advisor (and with the help of your partner, MillsonJames), to help your client understand what is real and what is market noise. While it may make sense for your client to make a transition, it should only be done after careful consideration and consultation.
- Enhanced Capabilities – New investment dollars can produce new and creative thinking which may lead to enhanced capabilities for you and your clients. We should be asking companies like Ultimate and PlanSource – What is on your technology roadmap? What investments have been expedited as a result of the new capital? What can we expect new/different with the new ownership? It is quite possible that the new investment will yield new capabilities that will deliver an enhanced solution for you and your client.
- Renewed Focus – It is human nature for an organization that is going through capital funding to lose focus and attention. Selling a company and/or attempting to sell a company takes a great deal of time, energy, and focus and many organizations can lose their way through this unique period. However, with a new investment behind them, they can begin to regain focus and will have renewed energy to go above and beyond to service their customers. Use this to your advantage.
- Willingness to Negotiate – From a customer’s standpoint, there are two likely financial outcomes that can deliver value and that value can be derived on either side of an investment transaction. During a build up to sell/take on investment dollars, CFOs desire to drive top line growth and will be willing to cut deals that they otherwise might not be willing to do. Take advantage of this. On the other side of an investment transaction, CFOs have a desire to deliver immediate results to their new owner/investor. As a result, they are once again willing to play Monty Hall with their version of “Let’s Make a Deal.” Regardless of the time you catch this wave, take advantage of it for the betterment of your client.
We are all blessed to live in a capitalistic society with a strong economy, in which companies have the opportunity to build a business and monetize it at some point. As a consumer, we also have the opportunity to capitalize on these activities for our own gain – and it is our objective to ensure that you and your clients are prepared to take advantage of (and/or avoid) these situations as they arise.