human capital management software market overview
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PRIVATE AND CONFIDENTIAL TECHNOLOGY 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
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
$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
SaaS Suite Vendors Dominate the Market
Source: Gartner, Forrester Research
FORRESTER WAVE GARTNER 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
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
...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
Many Point Solutions and Few Suite Providers
Sc
ale
L
arg
er
Sm
all
er
POINT SOLUTION PROVIDERS
MARKET CONSOLIDATORS
Talent Acquisition HR Core Admin
Candidate-facing Internal
Talent Management
Employee-facing
8
HCM Point Solutions Market Map
TALENT ACQUISITION
SOURCING RECRUITING + ONBOARDING
TALENT MANAGEMENT
PERFORMANCE + SUCCESSION TRAINING / LEARNING MANAGEMENT
HR CORE ADMINISTRATION
Sc
ale
S
cale
S
cale
RECOGNITION / REWARDS PAYROLL / BENEFITS / TAX / COMPLIANCE TIME + ATTENDANCE
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
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
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
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
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
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
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
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